The Canadian real estate market has been consistently dominating the news headlines for the last year. Reports of sales volume and average housing prices breaking records from coast to coast have been the story since the latter part of 2020 and the first quarter of 2021.

With the global pandemic causing many to work from home, the daily routine of millions across the country has drastically changed. People are now working remotely and spending far more time at home with their families, leading to a realization that more space may be a necessity. While prior to the pandemic, many people migrated to bigger cities for job opportunities and proximity to work, within the last 12 months the opposite has occurred.

Canadians have moved from big cities into smaller, more rural areas that promise green space and larger living quarters at a fraction of the cost, compared to urban centres such as Toronto and Vancouver. Shaun Cathcart, senior economist at the Canadian Real Estate Association (CREA) says, “one factor is that with work-from-home even more generalized, many people don’t have to live within commuting distance from their jobs. That means that folks who own condos and smaller homes can take out built-up equity and move to a property that better meets their needs – as over the past year, home is not only where you eat a few meals and sleep, but also the office, your kids’ school, playground, gym, etc.”

These changing Canadian homebuyer appetites have exerted pressure upon smaller real estate markets across the country that have welcomed the surge in demand but are struggling to keep up with supply. This has contributed to the upward surge in Canadian real estate prices over the past year – great news for homeowners, but a hurdle for first-time buyers who are eager to take advantage of current record-low interest rates.

Will Canadian Real Estate Prices Fall in the Coming Months?

The Bank of Canada’s low interest rate has led to many potential homebuyers engaging in the real estate market. All signals from the Bank of Canada currently point to interest rates remaining low for the rest of 2021 and potentially through 2022. In addition, it is forecasted that 701,000 properties are expected to be exchanged using the Canadian MLS systems in 2021.

For the rest of 2021, it is anticipated that activity will continue to climb and set monthly records. The national average home price could rise by 16.5% to just over $665,000 this year – a figure that may not be sustainable in the long run.

Real estate analysts suspect a soft landing for the Canadian real estate market in 2022. RBC Senior Economist Robert Hogue states there is a good chance that real estate activity will reach 588,300 units, an increase of approximately 6.5% when compared to 2020. As 2021 comes to a close, Hogue believes the market will begin to simmer and signs of prices falling will start to emerge. “Call it a 2022 soft landing,” states Hogue. RBC forecasts that seasonally adjusted and annualized resales at the end of 2021 will be down almost 26.4% when compared to the December 2020 peak of almost 700,000 units.

While these statistics are heading in the direction of a cooled off market, prices will likely continue rising for the better part of 2021, so don’t expect any significant softening to take place this year.

What Can be Expected in 2022?

As time goes on, the market may readjust as the pandemic starts to slow in tandem with the widespread vaccination of Canadians. The desire and rush to move away from bigger cities could ease and potentially reverse, as some businesses shift back to an in-person work environment, inspiring more professionals to live closer to the city.  The effects of the COVID-induced market frenzy will wear off and interest rates will eventually increase, which would cool the market, but it remains uncertain whether it will be a gentle re-balancing or a steep dive.

At present, CREA is projecting home sales across Canada will decrease by 12.6% to approximately 614,000 units in 2022. These changing market conditions are anticipated to affect all markets in Canada, largely led by a decline in demand as the pandemic fades away. The average price for housing in Canada is forecasted to increase by only 2.1% in 2022, to $679,000, if we’re able to level out of the demand-supply imbalance.

The Bank of Canada attributed elevated housing activity to a change in buying behaviour. This was evident in the increase in demand for single-family homes and a decline in demand for apartments and condos. The Bank of Canada also anticipates that buying behaviour will change over time and future price growth will soften.

What does this mean for first-time homebuyers? While the frenzied pandemic-induced real estate market activity of the past year may have been discouraging for those trying to get in on the action, there is hope on the horizon. Aligning yourself with a trusted professional REALTOR® is an important strategy to help you successfully navigate the ebbs and flows of the housing market, and ensuring that you get the most value for your hard-earned dollar.