OUR PREDICTIONS FOR THE 2022 REAL ESTATE MARKET

2021 will go down as a historical year in our local real estate market. It was a record-setting year on many fronts – throughout the year, we saw the greatest number of sales activity, the sharpest price increases, and the lowest levels of home inventory. It was also the year of innumerable multiple offers, unbelievable sale-to-list-price ratios, and the ever-frustrated buyer.

Multiple offers on the majority of home sales has now become the norm, and the expectation of both sellers and buyers alike. In the past, when we dealt with multiple offers, we maybe had 3 to 5 offers on the table and the variance of sales-price-over-list-price was a relatively small number. This past year has been record setting in not only the number of offers, but also the amount over list that buyers were willing to pay in order to secure a home. To see homes sell $100-$150k over list price would have been unheard of just a few years ago – and now, it has become so common that we’re often surprised when sellers don’t see six figure increases.

You would think that the market conditions of the past couple of years would have spooked enough buyers to the sidelines that the market would cool somewhat. Yes, some buyers have thrown in the towel and continued to rent. We’ve written about this in the past as well: the millennial generation is just coming into the peak of their first-home-buying years. Coupled with increased immigration to Canada, there are more and more buyers looking to get a toe hold in this market. A number of those frustrated buyers that stepped back last year will be back this year – many armed with additional funds, having tapped into intergenerational wealth transfers.

On today’s blog, we are making our predictions for our local real estate market in 2022. What do we expect? To the dismay of some, we don’t see any major shifts coming – instead, more of the same market conditions we experienced in 2021, though perhaps even more frothy.

OUR 2022 PREDICTIONS

The number of homes sales will continue to grow

They may not be dramatically above 2021 – because of the current low inventory levels – but we do anticipate another record-setting year for detached homes, as well as the condo market, as buyers increasingly look to what they can afford to buy versus what they would like to buy.

Inventory levels will remain at record-low levels

Under 1 months supply will be the norm across the board (meaning: if no new listings came to the market, the supply of available homes would be depleted by buyers in less than one month). Buyers will have to make sure they are ready to offer on a property – and quickly. No conditional offers will be expected, and buyers will continue to shoulder more of the risk in the buying process.

Multiple offers will become standard

That said, buyers will still be expecting homes to be in showroom condition or attractively unique if they are going to go way over the top with their offers. For the most part, overpriced homes or homes that are in very poor condition will still sell at or above the list price, just not for the incredible prices we have seen in the past year. Homeowners wanting top dollar will follow their Realtor’s advice and do the necessary staging and market preparation in order to bring the maximum attention from buyers. Yes, multiple offers have become standard, but that doesn’t mean buyers don’t have standards of their own.

There will be double-digit price increases again this year

Unfortunately for buyers, this is a bit of a no-brainer, as we don’t see interest rates increasing dramatically or a sudden surge of new listings hitting the market. There are just too many potential buyers and not enough listings in the market to see home values go in any other direction.

Interest rates will increase this year

But, not anywhere near what would be needed to take the pressure off this market. The Bank of Canada will focus on taming inflation as their primary goal, and will hope that the increases are enough to cool the real estate market. It’s needed, yet I think the government will not want to be seen as taking money out of the system while the pandemic continues. The federal government would rather keep throwing money out the door than risk being seen as pulling financial support.

Sellers will be reluctant to list their homes

Despite predictions 3 and 4 that would suggest sellers should be eager to sell, they will be slow to list for a few reasons:

Fear of COVID, and specifically the Omicron variant, means that sellers will be reluctant to allow dozens of buyers through their home. Even though Realtors have been very successful in showing homes without undue risk or exposure, for a lot of sellers, the fear of COVID will overshadow their desire to take advantage of this market – regardless of how Realtors can demonstrate the safety precautions.
The more impactful reason why sellers will be reluctant to list their home is that they can’t see enough homes already on the market that they would consider buying. Talk about a catch-22 situation! Experienced agents having worked in this market for the past 2 years are able to present sellers with some viable strategies to overcome their reluctance. For many sellers, that’s a huge leap of faith to sell without knowing their end destination. Fear of being homeless is greater than the lure of a financial windfall.

There will be a lot of frustration in this market

Buyers are not going to be happy with the enhanced competition this year, and most agents will be frustrated as well because of the intense competition and lack of consistency in the market. Politicians will do as politicians are wont to do: promising short-term solutions to long-term problems, adding to the frustration level across the population.

Government will try to cool the market, unsuccessfully

It’s hard to imagine either federal or provincial governments successfully implementing any of the promises from the recent election. For example, taxing foreign buyers: in reality, there are so few foreign investors in our market that even if this tax is implemented, any tax revenue will be negligible and the effect minimal. As far as the suggestion of taxing unclaimed equity in your primary residence goes, governments would sooner step down than enforce this on homeowners.

Our conclusion? Buckle up, as we’re in for another bumpy and newsworthy ride this year.

Next week we’ll publish our annual review of the market numbers. It will be a deep dive on our local real estate market. In two weeks, we’ll present a report from Shaun Cathcart, the chief economist for the Canadian Real Estate Association. His report will review market conditions across Canada and will make for an interesting read!

Happy New Year, and deja vu all over again!