What 2021’s Housing Market Looked Like, and What’s to Come
Wednesday Jan 05th, 2022
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.
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.