2022 Housing and Interest Rate Forecasts

For the second straight year—and in the face of an ongoing pandemic—the Canadian real estate market has continued to defy gravity.

Projected figures for 2021 suggest home sales will end the year 21% higher than 2020 (to a total of 668,000 transactions), while home prices will end the year up 21.2% to an annual average of $687,500, according to the Canadian Real Estate Association.

Tight supply has been a recurring theme, with CREA noting the months of inventory measure has fallen below two months worth of supply just four times in history: in February and March of 2021, and again in October and November.

“While price growth is not expected to be as extreme in 2022, many of the conditions that supported it right up until the end of 2021 will still be there on New Year’s Day,” CREA noted in its housing forecast.

While home price growth is expected to moderate in 2022, low supply is still expected to keep upward pressure on prices for much of the year, according to various forecasts that we’ve summarized below.

We’ve also recapped the latest interest rate forecasts for 2022 from the bond market and from analysts at the Big 6 banks. While the exact timing and pace of any Bank of Canada moves is still up in the air, it’s clear that rate hikes are on the horizon.

Real Estate Market

CREA

• 2022 home sales forecast: -8.6% (following a projected 21% increase in 2021)
• 2022 home price forecast: +7.6% (following a projected 21.2% increase in 2021)
• Commentary: “Along with an unprecedented supply crunch, there are quite a few other factors that will play important roles in Canadian housing markets in 2022. Ongoing strong demand from an unobservable but no doubt large number of households waiting for new listings to show up will be one tailwind,” CREA said. “There will also be headwinds, chief among them higher interest rates. While the Bank of Canada has set the stage for a tightening cycle of still indeterminate size to begin as early as April of next year, mortgage rates have already started to move higher, first this past spring, and again in the last few months.”
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Royal LePage

• 2021 house price forecast: +10.5%
• Commentary: “Following more than a year of record price appreciation across the country, Canadian home values are expected to rise strongly again in 2022, however at a slower pace compared to 2021. Pent-up demand from buyers who were unable to transact in 2021, coupled with the growing need for shelter from new household formation and newcomers to Canada, will continue to put upward price pressure on a market suffering from a chronic supply shortage.”
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RE/MAX

• 2022 house price forecast: +9.2%
• Commentary: “RE/MAX is anticipating steady price growth across the Canadian real estate market in 2022, with inter-provincial migration continuing to be a key driver of housing activity in many regions, based on surveys of RE/MAX brokers and agents…The ongoing housing supply shortage is likely to continue, putting upward pressure on prices.”
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RBC

• 2022 home sales forecast: -19.8%
• 2022 house price forecast: +3.3%
• Commentary: “Our view remains that deteriorating affordability (arising from soaring prices or higher interest rates, or both) and easing pandemic restrictions will gradually cool demand in 2022. We expect extremely tight demand-supply conditions will keep prices under intense upward pressure in the near term though we see such pressure easing significantly by the second half of 2022 as markets achieve a better balance.”
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TD

• 2022 house price forecast: +7%
• Commentary: “Higher interest rates are likely on the way and our rate forecasts imply that they will exert a moderate drag on housing demand. However, a supportive macro backdrop, alongside stress tests that offer ample room for rates to rise before buyers are crowded out, should keep activity holding above pre-pandemic levels next year…Affordability has become much tougher due to the rapid escalation of prices during the pandemic. That said, Canada has in its past managed to weather a situation where the cost-of-living situation was even worse without seeing a severe retrenchment in activity. And, both new and resale markets remain drum-tight, suggesting another strong year for price growth is in the cards for 2022.”
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CIBC

• 2022 home sales forecast: -15%
• Commentary: “Overall, we expect sales to fall by 15% in 2022, relative to the elevated level seen in 2021—an environment that is consistent with a notable deceleration in home price inflation next year,” wrote economist Benjamin Tal. “This environment is also likely to impact the relative value of condos vs. single-detached units…Logic suggests that higher rates will channel more activity into the more affordable condo market, resulting in relative price outperformance in that market.”
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Fitch Ratings

• 2022 house price forecast: +5-7%
• Commentary: “The slower growth will be driven by an expected rise in interest rates, inflationary pressures and declining affordability, which will dampen demand…Additional factors that could hinder price growth are new macro-prudential measures (additional stress tests or new taxes on non-owner-occupied homes). These measures would further limit the number of borrowers who qualify for a mortgage or make it less economical to own a non-owner-occupied property, which in turn would limit the number of buyers in the market (both new entrants and people looking to buy a bigger home).
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Interest Rate Forecasts

Below are the latest rate forecasts from the Big 6 banks. Averaging the forecasts, the Big 6 banks expect the overnight rate to rise about 1% by the end of 2022, meaning four quarter-point rate hikes by the Bank of Canada.

Looking ahead to the end of 2023, analysts from the big banks are calling for an additional three rate hikes, bringing the overnight rate to 1.75%.

Meanwhile, the bond market is maintaining its forecast for more aggressive rate tightening by the Bank of Canada.

As of Tuesday, it is still fully priced in for five quarter-point rate hikes by the end of 2022, which would bring the overnight target rate to 1.50%.

–Steve Huebl