An especially strong spring market has pushed Royal LePage to raise its full-year outlook for Canadian home prices, though experts say there should at least be some “moderation” in real estate activity heading into 2023.
The Canadian Real Estate Association (CREA) said Tuesday that while March saw fewer overall sales across the national housing market than last year’s all-time record for the same month, average prices were up 11.2 per cent year-over-year to $796,068.
But in Royal LePage’s latest housing survey also released Tuesday, the brokerage said the aggregate price of a home in Canada was $856,900 in the first quarter of 2022, an increase of 25.1 per cent annually.
Projecting that the “strong seller’s market” would persist into the spring, Royal LePage also raised its full-year forecast for home prices in 2022.
It now expects the aggregate price of a home to rise 15 per cent, ending up just shy of $900,000, compared with the previous estimates in January of a 10.5 per cent annualized increase.
“When we set our forecast for 2022, we’d expected a more moderate first quarter,” Royal LePage CEO Phil Soper said in an interview with Global News.
Soper pointed to high demand from buyers overlapping with a continual low level of housing stock, keeping prices at “uncomfortably high levels” through the first three months of the year.
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The start of the year, and the lead-up to the busy spring market, plays an important role in setting the price trajectory for the rest of the year, he said.
The spring market tends to “set a new bar” for the rest of the year, Soper explained. A hot spring will raise the overall trajectory of home prices in the market, even as the overall activity drops off towards the second half of the year, he told Global News.
In the Greater Toronto Area, that looks like a price hike of 16.5 per cent by the end of 2022 as the aggregate sale price crests $1.3 million, according to Royal LePage.
The Greater Vancouver Area is forecast to hit an aggregate sale price of $1.44 million thanks to a 15 per cent hike; Regina, meanwhile, would see only a seven per cent increase to an aggregate price of $385,300, Royal LePage predicts.
Activity down but still above pre-pandemic levels
The revised price predictions come amid renewed efforts to take some steam out of Canada’s housing market.
The Bank of Canada began hiking interest rates last month, raising its benchmark rate a total of 75 basis points since March 2. The new overnight rate of 1.0 per cent is aimed at making the cost of borrowing more expensive for Canadians, discouraging spending in an attempt to dampen rampant inflation.
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Kevin Crigger, president of the Toronto Regional Real Estate Board (TRREB), said that the first quarter of 2022 did see a slight drop in overall sales volume, but it still marked the second-highest month on record for sales activity in the Toronto market — down only from last year’s pandemic-fuelled push into the region’s detached segment.
Though housing activity remains elevated above pre-pandemic norms, Crigger said prospective homebuyers are beginning to bristle at home buying in the high price, rising interest rate environment.
“We are not seeing the same level of demand in 2022,” he told Global News.
Robert Kavcic, senior economist with BMO, said in a note to clients on Tuesday that March’s year-over-year decline in sales volume “might be the first in a longer series of softening trends.”
But as March 2021 marked a peak in pandemic sales volumes, the housing market has a long way to go before it returns to pre-COVID levels, if it ever does.
“I think certainly the pace of activity will be less. It’ll still be much higher than the average,” Crigger said of the rest of 2022. “Looking at price growth, I think we’ll see price growth moderation — but we’ll still see price growth,” he added.
Rising rates could ‘start to bite,’ economist predicts
But Kavcic is among observers who think the national housing market could have a bit more to give back than slower growth.
Kavcic, who previously said home prices are under “full-scale attack” as rates rise and governments shift housing policy, said in his note Tuesday that the second half of 2022 could see a drop in sale prices in some markets.
“The coming months, especially through the second half of this year when higher mortgage rates really start to bite, could start to show outright declines,” he wrote.
Crigger says the ongoing lack of supply in the Canadian housing market makes it hard to predict an overall decline in prices. Until that changes, prospective buyers should be prepared to stomach gradually rising prices for the foreseeable future.
“In terms of some of the waiting on the sidelines for a substantial shift in the realities of the market, I think that would be a very challenging position to take.”
Like Crigger, Soper told Global News that he sees homes appreciating “in a much more moderate fashion” towards the end of 2022. As Canadian real estate transitions out of the pandemic period marked by fervent demand, Soper expects prices will see slower growth from 2023 through to 2025.
“I expect that when we come out of this pandemic era and this unusually high price appreciation period, we’ll see home price (growth) heading towards those mid-single digits,” he said.
“It won’t happen immediately. It’ll ease into that level.”
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