Royal LePage doesn’t believe rate increases will restrain home prices growth

According to Royal LePage, rate hikes this year will not help in slowing today’s sharp home prices growth.

“Although rate increases tend to slow house prices gains, higher borrowing costs will be coming off historical lows and the hikes may not be enough to offset the strong price pressure coming from the national housing supply crisis,” – the firm explained.

Royal LePage expects Canada’s real estate prices to go up by about 10.5% on a year-over-year basis in 2022, pushed by double-digit increases in the Greater Toronto, Greater Vancouver and Halifax markets.

“We are facing the first expansionary housing cycle, which started in the second quarter of 2020, since the implementation of the federal mortgage stress test. Homebuyers had to qualify for a mortgage at a rate much higher than their contract one and it created a significant buffer before they reach their capacity to cope with bigger payments,” – noted Phil Soper, Royal LePage’s president and CEO.

The problem of housing affordability keeps intensifying even despite interventions by different levels of government.

According to Royal LePage, the aggregate home price in Canada went up by 17.1% annually in the fourth quarter of 2021 and reached $779,000.

On January 1, a new 1% tax on foreign-owned vacant properties came into effect. In addition to it, some policymakers have considered fighting blind bidding (when potential buyers don’t know what price other buyers offer) in order to cool the prices increase.

Soper says although he supports measures aimed at improving transparency in the purchasing process, he doesn’t think they address the root of the problem – the lack of supply.

“Policies that focus on reducing the demand amid growing household formation only distract from Canada’s real estate shortage crisis,” – he added.