Canadian Housing Markets Will Begin 2022 with the Tightest Demand/Supply Conditions Ever Recorded

On Wednesday, December 15, the Canadian Real Estate Association (CREA) released its national housing statistics for the month of November. Below, CREA’s Senior Economist Shaun Cathcart provides an update on the current state of housing markets in Canada and explains what the data means for REALTORS®.

As we ring in the New Year and finish calculating the final numbers for 2021, its clear housing markets across Canada will face the tightest demand/supply conditions ever recorded.

Canadian housing data released for the month of November 2021 was pretty much the same as in October. While the level of sales didn’t really change from October to November, remember this was on the heels of a 10% jump between September and October.

Meanwhile, with active listings as of the last day of November having fallen below the 100,000 mark for the first time ever, prices continued to grow at some of the fastest rates on record.

Monthly home sales over Canadian MLS® Systems were not as volatile in 2021 as they had been in 2020. They were nevertheless still all over the place, similar in scale to the ups and downs seen during the 2008-2009 financial crisis, but at a much higher level.

That said, this volatility, ranging from a seasonally adjusted annualized high of 807,250 sales in March 2021 to a low of 585,250 sales in August 2021, then back up to around 650,000 at the time of this writing, was not the result of lockdowns or any major fluctuations in demand itself.

Record low supply

Rather, with the end-of-month supply of homes for sale hitting fresh record-lows throughout the year, the ups and downs of sales in 2021 likely had far more to do with where and how many properties came up for sale in any given month. When and where they did, the demand was there to scoop them up.

The national number of months of inventory has only ever dipped below two months four times in history—in February and March of 2021, and then again in October and November of 2021. Historical averages are above five months. So, is it surprising prices nationally rose by more than 20% in 2021 compared to 2020? Price growth is not expected to be as extreme in 2022, but the conditions that supported it right up until the end of 2021 were still around on New Year’s Day.

What’s next?

Housing markets will face headwinds in 2022, chief among them higher interest rates. While the Bank of Canada has set the stage for a tightening cycle of still indeterminant size to begin as early as April 2022, mortgage rates have already started to move higher, first this past spring, and again in the last few months.

But it may not look the same as in past tightening cycles, first and foremost because in Canada borrowers must qualify for their mortgage loans at the stress test rate, currently set at 5.25%. We knew this was due for a re-evaluation at some point in December, and we pointed out in both our most recent monthly statistical release as well as in the quarterly housing market forecast that went out on the same day that there was a good argument to be made to leave the stress test alone this time around as it was still very much in “emergency mode.”

Now we take no credit for this, but two days later word did come from the Office of Superintendent of Financial Institutions (OSFI) they would be doing just that—leaving the stress test alone for now. As such, the stress test should act as a kind of cushion against rising rates for young and/or first-time buyers as it will be some time before it becomes any harder to qualify for a mortgage. That’s good because it’s hard enough these days.

Another point we made in our most recent stats release is that housing cycles are long—market trends do not care that we’ve put our 2022 calendar up on the refrigerator door. So, I went back and re-read my last blog post of 2020, where I had asked the question “with sales still setting records and demand-supply conditions the tightest they have ever been, do you see this all turning into a pumpkin at midnight on New Year’s Eve? I don’t.”

Allow me to recycle that sentiment for this post. At this point in the calendar, people always like to ask what will be different about the markets in the New Year. But a better question is probably what will be the same?

As our Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart provides housing market intelligence to Boards, Associations, members, and real estate industry stakeholders. He spends much of his time analyzing and writing about Canadian housing trends. In his downtime, you can find him on his bike, on the volleyball court, and enjoying time with his family.

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