Since the pandemic broke out in 2019-20, almost all the market sectors have shown notable vulnerability. And while the markets were on the verge of healing from Covid, another world event shook the economy adversely - the Russian invasion of Ukraine. This event has caused a severe rise in oil and other commodities prices, resulting in inflationary effects in the market, making the real estate market in Canada go on a roller-coaster ride. 

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While we hit an all-time low in 2020 (in terms of the number of annual home sales) due to covid, we also scored an all-time high in 2021, with 666,995 residential properties trading via Canadian MLS Systems. But the uncertainties due to the rise in the prices have made the real estate market vulnerable again.

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Even in 2021, the market couldn't hold the record for long, and we saw another steep fall in the second and third quarters of 2021. Although, the final quarter performed a little better than the previous two. According to the data released by Canadian Real Estate Association (CREA), the ending quarter has shown a recovery in the market with 9% growth in October only. However, the market slowed down again in the last two months of the year as they could add only 0.2% each, keeping the final numbers between the highs and lows of the year 2021. As a result, the year closed with 9.9% short compared to December 2020.

How's the start of 2022?

January Report

The CREA numbers show that real estate in the Canadian market has recorded quite tight conditions to start 2022. There was around an 11% drop in the newly listed properties from December. However, a 1% month-over-month (MoM) growth in national home sales for January was a sigh of relief.

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Another crucial factor affecting the real estate sector is the average home price. In January 2022, it hit a record high of $748,450, 21% higher than the same month last year. Besides, the Aggregate Composite MLS Home Price Index was also at a record high, up by 2.9% in January. Consequently, there was a decrease in home sales by 10.7% from January 2021. But this number remained the second-highest level on record for January.

February Report

February turned out a better month for people looking to purchase a home in Canada. With the advent of the spring market, real estate showed some bustling. It saw a massive MoM jump of 23.7%, highest-ever recorded in the number of new listings striking the market across the country.

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As per the data released by CREA, the MoM national sales in February rose by 4.6%. However, the actual number of transactions in 2022 is still 8.2% less than what we recorded in February 2021, despite that the numbers are holding all-time second-highest levels. As a result, the sales to listing ratio fell back to 75.3% in February, which briefly hit 89% in January (the long-term average for the national sales to new listing ratio is 55.1%).

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Even after some encouraging outcomes in the first batch of spring listings, the market stakeholders in February remained a little concerned. The reason was 1.6 months of inventory on a national basis by February end, which, on average, measures a little over five months. The Aggregate Composite MLS Home Price Index also recorded an all-time MoM rise of 3.5% in February. The Chair of CREA, Cliff Stevenson, says that it's still unclear if the surge of new listings and sales numbers in February is the beginning of reemergence for many dormant sellers or the supply will fade towards the summer like it did in 2021.

Market Expectations for 2022: Rising Prices, Falling Sales!

The real estate sector in 2022 will be slightly sluggish from 2021, as per the market trends & forecasts given by CREA. The forecast says that around 612,800 properties will trade via Canadian MLS systems in 2022. The expected number is 8.1% lesser than that in 2021. However, it will still be the second-highest annual figure in history by a significant margin.

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While the national average home price hit a new high at the beginning of the year, they may even rise by 14.3% to an annual basis of $786,000 by the end of this year. Besides the ongoing supply crisis, the second main factor that may impact the markets in 2022 and 2023 will be the higher interest rates. The Bank of Canada has already started increasing the discounted five-year mortgage rates. As a result, they are now back above pre-COVID-19 levels. A survey from Bloomberg Economics sees the overnight rate ranging from 1.75% to 2.75% by the end of 2023. However, it is more likely to reach close to 2.75% with the current market conditions by 2022 end.

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Here, it is also worth knowing about the Bank of Canada's latest policy announcement that says that the Russian invasion of Ukraine is a significant new source of uncertainty. It will add to the inflation around the world due to the rising prices of oil and other commodities. Besides, it will also impact the confidence and new supply, affecting global growth. As a result, even the financial market has become quite volatile. But the authorities are ensuring close monitoring of the situation.

Real Estate in Toronto

The real estate market conditions in Toronto have been quite the same as the national trends. There are no signs of any crash or bubble burst despite some uncertainties in the global levels. On the contrary, lack of inventory and continued buyer demand, listed properties will get sold at a lightning-fast speed.

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The prices of newly built properties are sky-rocketed with historic high levels. It is mainly because of the lesser supply of both new and old properties. The homebuilder association worries that these issues can hinder Toronto's competitiveness. In February, the benchmark price of a newly-built property (detached, semi-detached, or townhouse) touched the $1.86 million mark. It was a 35% year-on-year jump. And according to Building Industry & Land Development (BILD), the condo prices also rose annually by 13%, eventually leading to lesser affordability.

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Another thing affecting the real estate market in Toronto, like every other part of the country, is increasing mortgage rates as the Bank of Canada will stop the quantitative easing. As a result, the sales number will go down for 2022 from 2021.

The Final Word

While we are seeing a recovery from the Covid times, the real estate market is still shaky. Many global and national decisions will make real estate expensive in Toronto and other cities of Canada. As a result, we will see fewer home trades this year than in 2021. However, the number will still be the second-highest annual sales ever recorded. But, the main challenge will be to maintain a sufficient amount of inventory. 

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And, don't forget! If you plan to make any move in the real estate market, always talk to a professional realtor first.