Since the onset of the COVID-19 pandemic, Canadians have been taking advantage of some of the lowest mortgage interest rates in history. 

On March 4, 2020, the Bank of Canada (BoC) made a 50 basis point cut to its mortgage-market influencing overnight rate as the global economy grappled with the arrival of COVID-19, the first cut since 2015. After two additional cuts, the overnight rate sank to 0.25% where it has remained since. 

Now, according to the most recent overnight rate announcement from the BoC on Wednesday, Dec. 8, the current rate is still expected to hold into mid-2022. Adding into the mix, Consumer Price Index (CPI) inflation is anticipated to remain elevated into the first half of 2022. 

Shaun Cathcart, Senior Economist and Director of Housing Data and Market Analysis at the Canadian Real Estate Association (CREA) sheds light on what inflation and interest rates could have in store for us in 2022.

What changes in interest rates and inflation can we expect this year?

As the Canadian economy continues to recover from the ripple effects of the pandemic, the BoC said in its latest announcement the economy requires “considerable monetary policy support.” For this reason, the bank has chosen to maintain the overnight rate until mid-2022 when the first increase is expected to occur. 

Cathcart explains the decision to raise the overnight rate in the second or third quarter of 2022 has been established for some time now, but is still contingent on future market data. Already, mortgage rates have been rising in recent months like they did in the spring. 

“The bigger question is how many rate hikes are they going to do, and how fast are they going to do them?” said Cathcart.

The BoC’s decision to hold the overnight rate has also been made so that “economic slack is absorbed” in order to meet a 2% inflation target in 2022. 

The CPI, an indicator of changes for consumer prices, rose 4.7% on an annual basis in October 2021, the largest gain since February 2003. Initially, the BoC expected CPI inflation would die down by the end of 2021, having been elevated around the 3% mark during the summer. However, the BoC revised its forecast in October, predicting these levels would stay high until the first half of 2022 before easing down to 2% in the second half of the year.

“CPI inflation is elevated and the impact of global supply constraints is feeding through to a broader range of goods prices,” according to the December BoC announcement. “The effects of these constraints on prices will likely take some time to work their way through, given existing supply backlogs.”

How could these changes affect mortgages and everyday living?

With the overnight rate anticipated to rise next year, Cathcart says it may prompt some mortgage holders to lock in their rate ahead of time. 

For new mortgage owners, they’re qualifying at almost 300 basis points above the rate they’re getting, he added. In that sense, the mortgage stress test may act as a “major cushion” against rising rates, but this will depend on how the government may choose to adjust it.

“Depending on how much they raise it, if at all, that could impact people’s qualifying for mortgages more than the actual rate they’re getting,” said Cathcart.

With interest rates having dropped so low over the last two years, some existing mortgage holders may have opted to lock in or renew their mortgage to take advantage of potential savings. Cathcart notes similar to how market activity can be fueled by lower rates, a hike to rates tends to cool things off. 

“That’s definitely going to be a headwind for activity and prices remaining at the level they’re at next year,” he said. “The stress test is actually going to act as a bit of a cushion maybe against that.”

If the BoC must raise rates to control inflation, Cathcart says this makes it more expensive to carry a mortgage. As the BoC is saying they’re expecting inflation to remain high into 2022, this tells Cathcart it could be above their target for next year. 

“If they want to be slow and steady raising interest rates with so much debt out there, it’s not going to take as many interest rate hikes to get the effect that they want as it did in the past. The economy is more sensitive to that,” said Cathcart. 

Thanks to more purchasing power and scarce supply of goods and services, economists from the Royal Bank of Canada (RBC) also predict inflation rates are “likely to remain above central banks’ targets throughout 2022.” 

The rise in inflation has been driven by factors like higher commodity prices, climbing business input costs and policy stimulus, which are expected to ease over time. During the most recent jump in the CPI, Statistics Canada reported price increases for all eight major CPI components, from transportation to shelter costs. The price of energy, meat products, and passenger vehicles recorded some of the most notable yearly increases, rising 25.5%, 9.9% and 6.1% in October respectively amid labour shortages and supply chain challenges. If inflation continues to climb in 2022, it may impact the cost of living for many.

For the most up-to-date insights on how rising interest rates could affect you, ask for the advice of an experienced REALTOR® or mortgage professional.

The information above is for informational purposes only and should not be used as investment or financial advice.

Following a rollercoaster of a housing market in 2020, this year appeared much more normal by comparison. However, the 2021 Canadian real estate market was still a far cry from what we would typically expect when it comes to buying and selling homes.

“In terms of housing market conditions, they’re less normal,” said Shaun Cathcart, Senior Economist and Director of Housing Data and Market Analyst at the Canadian Real Estate Association (CREA). “They’re further away from a Goldilocks normal market than they were in 2020. We still have not turned a corner on some of these extreme conditions.”

From available home supply to the COVID-19 pandemic, real estate in 2021 was defined by tight market conditions and shattered sales records, attributes that could set the tone for 2022.

Tight market conditions persisted in 2021

Cathcart explains we came into 2021 with the tightest demand-supply conditions ever in Canada by quite a margin. The spring market was characterized by strong sales growth, with record-breaking levels reported in January, February and March. During these months, the national average sale price also jumped 22.8%, 25%, and 31% year-over-year. 

Transactions slowed into the summer as sales fell 7.4% and 8.4% month-to-month in May and June.

Activity picked back up into late 2021 as prices and sales surged again. In October, the Canadian housing market recorded its highest count of sales in history with 581,275 residential properties sold year-to-date, a level that passed the annual record of 552,423 sales for all of 2020. At this time, there was just 1.9 months worth of inventory on a national basis.

However, Cathcart notes the ratio between new listings and sales didn’t change. The quantity of homes available on the market often determined what prospective home buyers were able to purchase, not whether they wanted to buy properties in the first place. 

“The number of sales going up and down like that is dictated by how many homes come on the market, because everything is still selling,” said Cathcart. 

“To see a 25% decline in sales and say ‘demand is going away,’ and maybe price growth did slow down a bit in the summer, but I think those sales numbers could have stayed just as high if people had been listing their homes for sale,” he added. 

Supply shortages driven by multiple generations and buyer types

More than one factor appeared to contribute to dwindling supply in 2021. 

For existing homeowners listing their property for sale, those sellers needed somewhere else to go, Cathcart explained. In some cases, sellers were “stuck” as the limited market options made available to them kept them in place. Compared to first-time buyers who are likely to consider any home in their desired market, move-up buyers tend to look for a specific property that’s better than what they own, a small subset of the current market. This created a cycle that prevented some homes from coming online.

In addition, some sellers may not want to immerse themselves into the competitive market that frequently sees bidding wars, Cathcart said. Adding into the mix, Boomers, Gen Xers, and Millennials are all in their homeownership years at the same time, squeezing what available supply there is. There’s also the pace of new homes being built in comparison to high demand to consider as well. 

“In absolute numbers, the tightest markets in the country are right up in cottage country and areas on the outskirts of the Greater Golden Horseshoe in Ontario,” said Cathcart. 

The pandemic still played a role in influencing sales

Although mass vaccination and fewer lockdowns have helped business operations mostly return to normal, the COVID-19 pandemic still played a role in influencing market trends and behaviours in 2021.  

The importance of home still rings true for many current and hopeful buyers in the market. Existing homeowners who may have outgrown the needs of their current property continued to generate movement and sales across the country.

Home buyers could upgrade their property to something more spacious and downgrade their mortgage in the process by moving to affordable areas outside of urban centres where remote working is possible and no commute is needed. Inter- and intra-provincial migration is high and is expected to continue into 2022, according to research from RE/MAX Canada. 

“Definitely the panic of having to secure a bunker to ride out the pandemic, that part is pretty much over,” said Cathcart. “I think the COVID-19-related changes to people’s lives will continue to result in a lot of people moving around in the years ahead.”

Falling sales, higher prices anticipated for 2022

Heading into the new year, some of the conditions that influenced changes in 2021 could still linger. 

In September, CREA predicted in a quarterly forecast that sales would fall 12.1% annually to around 577,000 units in 2022 thanks to “higher prices and a lack of available supply.” While this drop in sales would make 2022 the second-highest year for transactions, Cathcart explained the predicted national home price average of $718,000 would likely be readjusted to a higher amount as September and October saw prices accelerate year-over-year by 13.9% and 18.2%. 

“If history is a guide, it could be revised higher again before we start to see the impact of things like higher interest rates when we do start to see things fully levelling off,” he said. 

The quantity of listings will continue to determine sales based on what is available for homeowners to buy. The kind of year we could see will largely depend on what each of the players in the market decide what to do next, whether they opt to stay put or move farther afield. 

“It’s going to depend on to what extent people continue to move all around the country, which generates a lot of activity,” said Cathcart. “It’s also going to depend on how many options those people who want to move actually have to be able to move.”

To find out what’s happening in your local real estate market in 2022, consult the insights of a REALTOR® for information on pricing, inventory, and more.

Though the history of Slovenia as an independent country dates back only to 1991 after the dissolution of Yugoslavia, the settlement later known as Ljubljana first emerged as the Roman city Aemona near the current site of Ljubljana Castle, on the banks of the Ljubljanica River. A city of bridges, like Budapest and Prague, Ljubljana connected along a trade route between the Adriatic Sea and the plains of the Danube, from Vienna to Budapest.

The Ljubljana Dragon symbolizes the city, a beast of Slavic mythology representing water, fertility and bounty, along with courage and power. The dragon may connect with the Greek myths of Jason and the Argonauts, but it’s more likely due to the association with Saint George, patron of Ljubljana Castle’s chapel. The dragon, part of the city’s coat of arms for hundreds of years, became increasingly central as Ljubljana’s mascot through the 19th and 20th centuries.

Ljubljana castle

Dominating the Slovenian capital’s downtown skyline, Ljubljana Castle sits atop a hill in much the same way as Edinburgh castle oversees its city. The castle also provides the setting for the dragon on the coat of arms. 

Original construction of the castle likely dates back to the 11th century, but the castle’s current profile stems from a 15th century rebuild as a defence against Ottoman invasion and peasant uprisings. The irregular medieval fortress now serves as a cultural centre for the city, a beautiful and benevolent overseer of the Ljubljana basin.

Zmajski most (The Dragon Bridge)

A road bridge built in the Vienna Secession style in the early 20th century, the Dragon Bridge crosses the Ljubljanica slightly northeast of Ljubljana castle. Replacing an oak bridge damaged in an 1895 earthquake, the Dragon Bridge takes its name from four copper sheeted dragon sculptures that visually highlight the four corners, with an additional 16 smaller dragons sprinkled about.

Prešeren Square

The heart of the city beats strongest through Prešeren Square, a hub at the bend of the Ljubljanica northwest of the castle. It’s a prime spot for events, such as the city’s Dragon Carnival and other festivals. 

The square, a pedestrian zone since 2007, began to take its current form with the construction of the Baroque Franciscan Church of the Annunciation in the mid-1600s. The 1895 earthquake led to the clearing and revitalization of the square, with a monument to Slovene national poet France Prešeren added in 1905.

Slovenian Philharmonic Building

Though its predecessor, the Estate Theatre, succumbed to fire in 1897, the neo-Renaissance Slovenian Philharmonic Building survived the earthquake four years after its 1891 construction. It serves as home for the Slovenian Philharmonic Orchestra, one of the oldest in the world. Canadian Keri-Lynn Wilson served as the orchestra’s principal conductor between 2013 and 2015, the first woman to hold the role. 

Nebotičnik

Incorporating Art Deco and neoclassical design elements, the 13-storey Nebotičnik ruled as the tallest residential building in Europe for years after its 1933 completion. The design incorporated the skyscraper triad ideas of American architect Louis Sullivan: the base that interacts with the street and pedestrians, the central column comprising the bulk of the building, and a capping crown. Constructed from reinforced concrete, Nebotičnik (translated, “the skyscraper”) incorporated many new technologies including safety standards against seismic activity.

The modern history of Ljubljana is largely tied to two names: Maks Fabiani, personal advisor to Austro-Hungarian Prince Franz Ferdinand, and Jože Plečnik, an important native Slovenian architect. Their design visions overlay the deeper history of the city, shaped by time and circumstance into an architectural melange with more than a passing nod to Art Nouveau, the in-vogue style at the time of post-quake rebuilding. An elegant and green city, Ljubljana holds plenty of treasure for architectural sightseers.