Royal LePage adjusts 2022 national home price forecast lower to 5% over 2021 to reflect softening markets in Ontario and British Columbia
Second quarter records first quarter-over-quarter national decline since Q1 2019
Second quarter highlights:
- National aggregate home price increases 12.1% year-over-year in second quarter of 2022; decreases 4.9% quarter-over-quarter.
- Royal LePage reduces national home price forecast to +5.0% in fourth quarter of 2022; expects home prices to hold relatively flat through the second half of the year in greater regions of Toronto and Vancouver. Greater Montreal Area expected to see continued price appreciation.
- An uneven market recovery is expected as some regions experience continued price appreciation, while others soften.
- Interprovincial migration to affordable real estate markets supports home price growth in Alberta, Prairies and Atlantic Canada.
- Royal LePage cautions policy makers that growing inventory is masking an acute urgency to solve Canada’s housing supply crisis.
TORONTO, July 13, 2022 –According to the Royal LePage House Price Survey released today, the aggregate price of a home in Canada increased 12.1 per cent year-over-year to $815,000 in the second quarter of 2022. On a quarterly basis, the aggregate price of a home in Canada decreased 4.9 per cent in the second quarter after reaching record year-over-year highs in Q1. This is reflective of softening home prices in markets that saw exceptional price growth during the pandemic. The second quarter of 2022 is the first quarter in more than three years (since Q1 2019) to post a quarter-over-quarter decline in home prices.
Royal LePage is forecasting that the aggregate price of a home in Canada will increase 5.0 per cent in the fourth quarter of 2022, compared to the same quarter last year. The forecast has been revised downward from the previous quarter following more aggressive than expected interest rate hikes by the Bank of Canada, resulting in an expected temporary drop in demand in parts of southern Ontario and British Columbia.
“Some of the heat that was driving the market cooled during the quarter as rising interest rates coupled with economic uncertainty undermined consumer confidence and pushed buyers to the sidelines,” said Phil Soper, president and CEO of Royal LePage. “We have significantly reduced our outlook for 2022, however home prices are still forecast to end the year higher than 2021 and well above pre-pandemic norms. Following record price gains across the country, numerous markets in southern Ontario and parts of Greater Vancouver – specifically those that saw some of the highest price appreciation over the last two years – experienced a second quarter decline. I expect this highly unusual downward movement in home values will be short-lived as the country’s chronic housing shortage has not been resolved.
“Barring a sharp increase in the inventory of properties for sale in this country, which seems unlikely given our exceptionally low level of unemployment, growing population and miniscule rate of mortgage default, we expect that the second quarter produced most of the price declines we will see this cycle,” continued Soper.
The Royal LePage National House Price Composite is compiled from proprietary property data, nationally and in 62 of the nation’s largest real estate markets. When broken out by housing type, the national median price of a single-family detached home rose 12.4 per cent year-over-year to $859,500, while the median price of a condominium increased 12.2 per cent year-over-year to $589,000. Price data, which includes both resale and new build, is provided by Royal LePage’s sister company RPS Real Property Solutions, a leading Canadian real estate valuation company.
Supporting the expectation that resale home prices will hold their value for the remainder of 2022 is continued household formation from peak millennials who are reaching traditional home-buying age, high levels of immigration, a healthy job market and the high construction cost of new homes. Since 1980, there have only been seven instances of a 3-month decline in resale home prices of 10 per cent or more, with the most recent instance occurring in May, 2022.
“We don’t expect to see much movement in housing values through the balance of the year,” added Soper. “Canada is experiencing strong growth in household formation, so positive economic news, such as a signal that rates have reached a level where inflation can be managed, should trigger a return to rising property values. The small percentage of consumers who purchased properties at 2022’s February/March peak will have seen a short-term decline in the value of their homes, but there is little doubt they will soon make up that lost ground.”
Royal LePage is providing caution to policy-makers who may see growing inventory as a sign that Canada’s housing supply crisis has become less urgent compared to election periods when Canadians from coast to coast expressed concern and sought action to improve the supply of housing.
“Although demand has temporarily weakened, Royal LePage is concerned that this short-term reprise from rapidly rising home prices may cause decision makers to shift their attention to other issues, thinking Canada’s housing supply crisis can wait — it cannot,” continued Soper. “The current market correction will create pent-up demand. A growing domestic buyer pipeline coupled with the need to house hundreds of thousands of new Canadians threatens to far outstrip the tepid pace of new home construction.”
In search of a comfortable lifestyle that affordable housing provides, households are continuing to leave the more expensive regions of the country and migrate towards those where housing is more affordable. During the first quarter of 2022, there was migration out of Ontario and towards British Columbia, Alberta, Quebec and Nova Scotia, which is supporting home price growth in those regions. Excluding the greater regions of Toronto and Vancouver and the city of Ottawa, all remaining major forecast regions saw quarter-over-quarter aggregate home price growth (Halifax, Montreal, Winnipeg, Regina, Calgary and Edmonton).
Greater Toronto Area
The aggregate price of a home in the Greater Toronto Area increased 12.8 per cent year-over-year to $1,167,000 in the second quarter of 2022. On a quarterly basis, the aggregate price of a home in the GTA decreased 8.1 per cent in the second quarter, after reaching record year-over-year highs in Q1. This is the first quarterly decline in the region since Q1 of 2018.
Broken out by housing type, the median price of a single-family detached home increased 10.5 per cent to $1,437,600, while the median price of a condominium increased 17.3 per cent year-over-year to $738,800 in the second quarter of 2022.
“The city of Toronto and the greater region, along with many secondary cities in the Golden Horseshoe, have seen housing demand slow in recent months as many buyers take a step back in an attempt to time the market,” said Karen Yolevski, chief operating officer, Royal LePage Real Estate Services Ltd. “Buyer behaviour has shifted. They are in a wait-and-see pattern, assessing the impact of further expected interest rate hikes and rising inflation. For the first time since the start of the pandemic, the real estate market is experiencing a more normal summer slowdown in activity.”
Yolevski noted that the softening market is providing a rare opportunity to first-time buyers who have been unable to transact over the last two years. It’s also creating an opportunity for renters who are considering buying, as purchasing has become slightly more attractive.
“We’ve reached a tipping point for renters, as rental rates continue to increase and inventory in the resale market rises,” said Yolevski. “Those who are able to save enough of a down payment may feel they have more choice in today’s market.”
In the city of Toronto, the aggregate price of a home increased 11.7 per cent year-over-year to $1,245,600 in the second quarter of 2022. During the same period, the median price of a single-family detached home increased 9.3 per cent to $1,694,900, while the median price of a condominium increased 6.8 per cent to $742,600.
“The fundamentals of Toronto’s housing market have not changed. While inventory has been creeping up due to consumers moving to the sidelines, the housing supply crisis in Toronto remains a significant long-term challenge,” said Yolevski.
Yolevski expects that prices will remain flat through the remainder of 2022.
Royal LePage is forecasting that the aggregate price of a home in the Greater Toronto Area will increase 3.0 per cent in the fourth quarter of 2022, compared to the same quarter last year. The previous forecast has been revised downward, as a result of softening demand due to more aggressive than expected interest rate hikes by the Bank of Canada.