Toronto real estate broker Cailey Heaps remembers how worried she was at the start of the pandemic about whether her brokerage would be able to keep its agents employed.
“I look back now and I think it is remarkable to me that the pandemic has proven to be the major driver of one of the strongest real estate markets that we’ve ever seen,” she said.
Now with the emergence of the Omicron variant, she expects COVID-19 to continue fanning the region’s pandemic preoccupation with a housing market that has been blazing since the end of the initial lockdown in spring 2020.
Both Royal LePage and Re/Max are predicting 2022 will be another year of double-digit price growth and sellers’ markets, not only in the GTA but in most of the country.
Re/Max Canada is calling for home prices to rise about 9.2 per cent next year. President Christopher Alexander says Toronto-area markets will range from 7 to 8 per cent in Durham and Brampton, respectively, to 10 per cent in Toronto and 14 per cent in Mississauga.
Royal LePage predicts Canadian prices will rise 10.5 per cent year over year in 2022 with the GTA expected to see an 11 per cent increase in home prices.
“Double digit home price increases aren’t disappearing, but it’s not 20 per cent, it’s 10 per cent,” said CEO Phil Soper.
That growth is being driven by the same trends that have fuelled the market throughout the pandemic, said Heaps, who represents Royal LePage.
“The features that buyers will be looking for in housing include space and easy access to outdoors — the concept of having a lifestyle-driven home. Having your cottage and house in one has become more of a priority in the upper price point. That means heavily landscaped yards that allow you to entertain privately at home. People are really craving a lot of a natural light,” she said.
Heaps expects the busy fall of 2021, which saw record sales and price gains, will continue through the winter.
“There’s still a lot of leftover demand from 2021 that hasn’t been satisfied as a result of lack of inventory,” she said.
“Next year will be a bit calmer but because of the housing shortage prices are still going to go up,” said Alexander.
John Pasalis, president of Toronto’s Realosophy, expects 2022 to open with a highly competitive market in the first quarter.
“You tend to have the highest number of buyers in the market with no listings because not a lot of people are listing in January. My instinct is it’s just going to be a continuation of what we have now, which is like a super, super competitive market,” he said.
“The one thing that’s going to be hard to predict when we think about what causes the market to slow down is potentially just buyer fatigue. If people just start thinking, ‘I’m tired of this. This is ridiculous, this is too expensive, I’m out,’ that could definitely take some heat out of the market,” he said. “But for now, it’s still pretty active and it will probably continue to be active in the new year,” said Pasalis.
Here are some of the trends industry insiders told the Star they expect to see in the 2022 housing market.
Once the laggards in the pandemic housing market, the condo sector has largely recovered and prices will probably rise at least 10 per cent in 2022, said Shaun Hildebrand, president of development tracking market research firm Urbanation.
He bases his prediction on a less than a one-month supply of resale units and prices that at the end of the year were appreciating at about 20 per cent annually.
But high single-family home prices mean the gap between a condo and a detached house is also running at a high of about $850,000.
“Now you can effectively buy two condos, with money left over, for the price of buying one detached home,” said Hildebrand.
“Average detached prices are above $1.6 million. Even a semi, a row or a town home, prices are over $1 million so condos have gained an affordability advantage that will work in their favour in 2022 particularly as interest rates begin to move higher and affordability takes a bit of a hit,” he said.
A record year for pre-construction condo sales in 2017 will translate into a new high for condo completions in 2022 with about 30,000 slated for occupancy, said Hildebrand. He doesn’t expect the industry can deliver that many but there will be enough investor-owned new units to boost rental inventory and “restrain rents from completely running away next year,” he said.
There were about 16,000 condo completions this year and about 22,000 in 2020.
Heaps says the quest for more square footage, dedicated home office and outdoor spaces shifted the condo market to single-family housing early in the pandemic.
“That shift is now normalizing a little bit. People are more comfortable getting back into the condo market,” she said.
But they still want more space, and particularly at higher price points that can translate to an advantage for older buildings.
“Clients who are coming out of some of the more established central Toronto neighbourhoods, whether it’s Moore Park, Rosedale, Lawrence Park, the Bridle Path, etc., really want to go into buildings that have a prime location, excellent square footage and layout, and ideally some type of protected view. To get that combination you typically have to go back to old condos,” she said.
Hildebrand expects to see condo rents grow between 5 and 7 per cent in 2022, restoring them to pre-pandemic levels of about $2,400 or $2,500 a month.
“Relative to the cost of buying the average priced condo and carrying a mortgage and condo fees and property taxes, (renting) is still quite a bit less expensive than the ownership side,” he said.
Purpose-built apartment vacancies, which peaked in the first quarter of this year at about 9 per cent, had dropped to about 4 per cent at the end of the year. Hildebrand expects they will be down to about 2 per cent by the end of 2022 or early 2023.
There are 6,500 purpose-built rentals scheduled for completion next year, the highest number in more than 30 years.
Pasalis of Realosophy says rents will play a role in determining whether Toronto housing continues to attract so many investor buyers, an area of concern since Teranet showed nearly 30 per cent of home purchasers own more than one property.
That is a worrying trend, said Pasalis.
“When you have a disproportionate number of investors, it just creates bigger rises and bigger busts because (investors) push prices higher than they otherwise should be. Then, the second the market cools, they end up causing prices to fall more than they should,” he said.
In 2018, the Bank of Canada used Realosophy’s neighbourhood data to show that areas with the biggest decline in prices after the 2017 housing peak had the highest levels of investor owners. Areas without much investor activity didn’t see a drop.
Royal LePage CEO Soper downplayed the impact of investors, saying they remain a tiny portion of the housing market if the concern is home flippers.
“People are mistaking a good, solid landlord who’s buying a condominium or two as an alternative to an RRSP, for flippers,” he said.
“As homes appreciate at a slower rate, as the threat of interest rates rising looms, it doesn’t seem a very fruitful market for those evil home flippers,” he said. “No one’s ever pointed to data that linked housing flipping to broad-based home price inflation.”
Suburbs and beyond
Interest in the suburbs has been strong since the start of the pandemic with homebuyers seeking more space to work and study and forecasters expect that will continue.
Royal LePage’s Heaps says the Toronto supply shortage that sharply pushed up house prices in the city means buyers have to decide whether to compromise on square footage or move to the suburbs to get the space they want.
“With the ongoing pandemic and then the new mindset of home being a place to live and work, people are much more open to being in the suburbs because it doesn’t involve the commute it used to involve,” she said.
Heaps also thinks Omicron will discourage the push for people to return to their offices, which will continue to push suburban housing demand.
Re/Max’s Alexander said the quest for affordability will almost certainly extend the other moving trend — which is out of province.
“Atlantic Canada is having a bit of a boom right now,” he said. “The only thing they’re really missing from an amenities perspective is a pro sports team. Halifax has got amazing restaurants, good entertainment. There’s a buzz there,” he said.
Detached houses have seen the biggest gains in the pandemic with the average price of a Toronto house hitting about $1.8 million in November, said Alexander.
“That level will be harder and harder to sustain. I wasn’t expecting 2021 to be as robust as it was but I just think despite the rising prices, there’s a feeling in the marketplace that it’s a little bit less frenetic and buyers are doing their due diligence and there isn’t this emotional overwhelm,” he said.
The lack of listings is the main reason Toronto-area home prices continue to rise, according to the Toronto Regional Real Estate Board.
Royal LePage’s Soper said people want to move but they are terrified they will sell their house and not be able to find another — but the recent easing of multiple-offer scenarios might prove to be psychologically helpful.
“Even if it’s just three other people have put in bids, as opposed to 30, that gives people a lot of comfort. I do think there will be a little bit more balance. But it won’t be a balanced market,” he said.
Until there’s a financial crisis — something he’s not expecting — Canada will be stuck in a seller’s market because of the chronic shortage of homes inventory, said Soper.
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