Is Housing Market Going to Stability or Crash in Canada?

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It is a question that many renters, millennials, and frustrated homebuyers are dying to know: Is the housing market going to stability or crash in 2022? Will prices drop back to pre-pandemic levels?

To be sure, the market in Canada is heavily overvalued. According to Moody’s Analytics, it is overvalued by around 91%. This may seem like bad news for sellers as an overvalued market would seek to be corrected, but this bad news is equally good for homebuyers. As Moody’s Analytics suggests, the Canadian real market will face a correction in 2022, nor they will do it in 2023.

Notwithstanding the correction, can house prices drop in 2022? Will the housing market crash? If you are interested to know the answers, continue reading as we will take a closer look at the prices this year.

Will Housing Market Crash in 2022?

Taking the Canadian housing market as a whole, it is unlikely the prices will drop.

However, if we take a detailed look at the housing market, we might see corrections in certain places. For instance, Moody’s Analytics forecasts a 5.9- 7.21 per cent decline in prices for the Montreal market – the only major metropolitan area with a prediction of a drop. Aside from a few corrections, house prices as a whole will continue to appreciate. The reason behind this is the same that brought house prices up by 26.6 per cent in 2021: low supply and enormous demand.

But the gap between the two is growing wider. Although it is true that construction companies are working 24/7 to build more homes, it is unlikely they will build enough homes to please buyers. Adding to this the fact that housing decreased 3 per cent in January, with around 15,000 fewer units than expected. This is the sixth time in the last seven months that housing starts were less than expected.

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In a survey, RBC estimated that the housing market fall short between 180,000 to 250,000 units at the end o 2021. This deficit of homes was carried into 2022, making it harder for the housing industry to cater to the demand. If we want to rebalance supply and demand, we would need to triple active listings. With a slow start already in the first two months, it is unlikely we will be able to build enough homes to fulfil the demand.

Thus, as most experts suggest, housing prices will decelerate. If this happens, the rate at which prices grow will decline, even if houses grow more expensive. RBC, for example, forecasts a 6.2% increase in Canada’s benchmark price, which would be little more than a third of the 17.8% increase we saw in 2021. House prices will still grow, but at least they will not ballon as they did last year.

Housing Market Showing Signs of Cooling

Real estate observers say that rising interest rates are already cooling down Canada’s hot housing market. However, some economists warn that the Bank of Canada will have to maintain a tough balance with monetary policy tightening; otherwise, the market will be at high risk of crashing.

Central banks across the world have also signalled the hike in interest rates through 2022 in an effort to restrict global inflation. The Bank of Canada is kicking off what is expected to be a series of increases to the key overnight rate earlier this month. The Bank of Montreal said in its latest forecast on Monday that it now expects the Bank of Canada to increase rates by 50 basis points to one per cent, and another 50 basis point hike to follow.

Expect property prices will take a long time to recover after that. They expect supply to outpace demand from 2025 to 2030, resulting in annual growth of less than 1% for the next five years. By mid-2028, salaries will have caught up, and affordability will be restored. The prognosis is a perfect mix of price drops and stagnation, with minimal consequences. They don’t expect a recession or severe economic drag if this happens. The majority of price drops would go unnoticed by owners.

The Bottom Line

To summarise, don’t hold your breath if you expect property prices to fall in 2022. Prices will most certainly continue to rise until early 2023. Anything could happen in the coming year, but prices are unlikely to fall unless something satisfies our housing demand.

At Lionsgate, we specialize in helping people get the extra cash they need, obtain funding for private mortgages, as well as for other real estate transactions. If you are looking to buy land in Canada, get a mortgage or apply for a loan, fill out the form below. Or, You can leave us a message and we will try to connect you with local lenders and sources that best meet your needs.

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