Buying a new home in already uncertain times can be stressful, and the 2020 and 2021 housing market has been a bit of a whirlwind – to say the least. From the initial plummet of the market at the beginning of the pandemic to soaring new highs for realtors across the province, the good news is that while certain homebuyer trends are expected to continue into 2022, we anticipate strong home sales growth overall. So, let’s take a closer look at 5 homebuyer trends to expect in 2022 and what they mean for the housing market for buyers and sellers alike across Ontario.
1. Interest Rates May Increase
After the steep but short-lived decline in activity at the start of the pandemic, the Canadian housing market resumed its upward trajectory throughout 2020 and 2021 and is expected to continue into 2022. Although this high demand has resulted in record-breaking price growth, which is advantageous for sellers and realtors, it also means that people looking to buy in 2022 can expect interest rates to increase potentially. Although not ideal for buyers, these increased interest rates protect the market. To illustrate my point, the skyrocketing home price growth of the past year has triggered worries about another housing crash on par with what happened before the Great Recession. However, the main difference is that in 2022 there is no oversupply of homes, a more thorough mortgage application and security process is in place, and significantly less risky subprime lending is allowed which had all contributed to the earlier market crash. So, while the rates might increase, with down payment expectations staying strong, robust demand from qualified buyers will stave off a collapse and lead to the solid expected home sales growth in 2022.
2. Local Supply Continuing to Impact Appreciation
As mentioned, one continuing market challenge in 2022 will be local supply. Some even claim that Ontario has become ground zero for unaffordability and that the culprit behind rising prices and rates is low supply. While this may be true, affordability is among the key concerns for the real estate industry, which means that we could potentially even see the government come out with a National Housing Strategy to boost supply and repress the rising appreciation of these homes. Some other solutions we might see would be incentivizing developers to build more affordable housing in these areas or even offering tax rebates to motivate homeowners to move. Either way, supply and affordability are significant factors that can cause people to leave a region in search of more affordable housing options. For example, a survey conducted by the Ontario Real Estate Association in July 2021 found that a significant number of Ontarians have thought about moving to a smaller community outside of the Greater Toronto Area in the past year. So, while there will be continued challenges for market supply and ultimately buyers looking to break into the market, the fact that local supply will continue to appreciate due to this demand makes it the perfect time for a seller to get in on the action.
3. High-Intensity Seller’s Market
Due to the low supply, high demand, and increasing prices, Canadian real estate can expect a high-intensity seller’s market throughout 2022. For example, an analysis completed by RE/MAX Canada at the end of 2021 projected that 97% of Canadian housing markets were expected to be seller’s markets in 2022. This is great news if you’ve been hoping to get your home on the market this year, and smaller metro areas in Ontario can expect the strongest house appreciation rates. This is because people are looking to move out of the city centres and into the new, less pricey suburbs with more space. Plus, with employer flexibility expected to continue, people no longer have to be rooted in the city and can work remotely – an opportunity that many are taking full advantage of. Although it’s a strong seller’s market, a recent survey showed that 49% of respondents view Canadian real estate as a top investment option and believe the market will remain steady throughout 2022.
4. Powered by First-Time Millennial Homebuyers
One significant contributing factor to the market remaining steady in 2022 is that it has the potential to be powered by first-time Millennial homebuyers. Currently, there are 45 million Millennials, aged 26 to 35, in a ‘homebuyer sweet spot,’ with many looking to make 2022 the year they buy their first home. With the uptick in mortgage rates, affordability will be a top consideration for these Millennial home buyers and will once again push them to the suburbs or other markets that provide good real estate value. Suburbs are high on the list for Millennials because they offer a lower price per square foot, generally more space, and excellent future resale value. The turbulent and uncertain nature of the past few years also weighs heavily on a Millennial’s mind and has made it more apparent than ever that homeownership and paying towards your own mortgage is more desirable than paying rent that goes towards someone else’s mortgage. With the 2022 housing market heating up to be a robust seller’s market, Millennials whose primary concern is affordability should investigate their mortgage application sooner rather than later to avoid inevitable further appreciation.
5. New Home Building to Increase
As we have identified, limited supply is a major driving factor in the current housing market. The good news is that developers and construction crews will be getting to work in 2022 to quell the current high demand. For example, the federal government wants to jump-start housing construction for the year by helping specific municipalities build 100,000 new ‘middle-class’ homes by 2025. Plus, as mentioned above, we might see government-funded programs and incentives roll out to further motivate builders, sellers, and buyers alike. Increasing the number of available homes can alleviate some of the market pressure that has been building throughout 2020 and 2021, which will come to a head in 2022 if not properly addressed. If new home building was not set to increase, we could see the market pressure multiply and prices skyrocket as we did throughout the pandemic. So, while certain market challenges will continue to maintain their impact on local markets, these steps to build new homes will be a jumping-off point for balancing out the hot seller’s market in 2022.
.. Final Thoughts
Although there will be some clearly defined market challenges throughout 2022, particularly for buyers, such as increasing mortgage rates, prices, and demand, the market is also poised to have strong home sales growth overall. For those looking to take advantage of the market, it might be suitable to jump sooner rather than later because, depending on things like new home construction and market turnover, these pressures might increase throughout the year. On the flip side, it’s an excellent time for buyers to get their home on the market and get the best value for their dollar. Furthermore, we will see Millennials become a larger driving force in the housing market throughout 2022, with many taking the leap even though some call the current climate uncertain. Thankfully, the housing market’s pressures are being addressed through things like government-funded programs that provide support to developers, with the potential for other services later down the road if needed. Ultimately, defined by a high-energy seller’s market and robust anticipated home sales growth, 2022 will be another busy year in real estate as many look to change their current living situation.
