Housing market conditions in 2022 will be a race between low listings inventory and rising mortgage rates

Highlights:
• Listings remain stubbornly scarce in the early part of 2022, inventory will not build until sales fall;
• Mortgage rates are expected to rise and the stress-test rate is expected to remain flat in 2022;
• Sales are expected to fall from 2021 levels due to deteriorating affordability;
• Extreme upward price pressure remains at the start of 2022;
• Prices are expected to rise in 2022, but the majority of upward moves will happen in the first half of the year.

The fall market saw new lows in inventory and renewed upward pressure on prices

The resale housing market moved in two bursts in 2021 with composite benchmark prices increasing 11% between January and June and a further 4% increase between September and December. 

With persistently strong demand and new listings unable to keep up, benchmark prices have risen 36% for detached, 28% for attached, and 13% for apartments since the beginning of the Covid-19 pandemic in March of 2020. Looking ahead into 2022, home price growth will come back toward longer-term averages as rising mortgage rates, and price levels squeeze some potential buyers out of the market.

As can be seen in the report, even a normalizing of the number of buyers and sellers in the market will take 18 to 24 months for the listings inventory to recover from the severe drawdown that’s occurred in the market since the fall of 2020.

Rising rates are expected to bring the market closer to balance.

Mortgage rates find themselves in a position they haven’t been in since 2008. There’s a sizable gap of over 1 percentage point between fixed-rate and variable rate mortgages at the moment. Mortgage rates should increase gradually (see forecast in report) from recent lows in the spring, as major central banks continue to wind down their asset purchasing programs and slowly tighten monetary policy through raising short-term borrowing rates to reduce consumer demand and some consequent inflation pressures. Barring any additional changes to the stress test rules (which is never a given), the stress test rate is expected to be flat through 2022. However, rising rates will depress demand for mortgages despite maximum borrowing amounts being unchanged. This will reduce future demand and ultimately reduce sales volumes and moderate price growth.

Credit: REBGV

The Metro Vancouver housing market saw steady home sales activity, modest increases in home listings and continued upward trends in pricing in February.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 3,424 in February 2022, an 8.1 per cent decrease from the 3,727 sales recorded in February 2021, and a 49.8 per cent increase from the 2,285 homes sold in January 2022.

Last month’s sales were 26.9 per cent above the 10-year February sales average.

“As we prepare to enter what’s traditionally the busiest season of the year, the Metro Vancouver housing market is seeing more historically typical home sale activity and a modest uptick in home listing activity compared to last year,” Taylor Biggar, REBGV Chair said.

There were 5,471 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in February 2022. This represents an 8.4 per cent increase compared to the 5,048 homes listed in February 2021 and a 31.2 per cent increase compared to January 2022 when 4,170 homes were listed.

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 6,742, a 19.3 per cent decrease compared to February 2021 (8,358) and a 19.1 per cent increase compared to January 2022 (5,663).

“Despite having a higher volume of people listing their homes for sale in February, the region’s housing market remains significantly undersupplied, which has been pushing home prices to new highs month after month,” Biggar said.

For all property types, the sales-to-active listings ratio for February 2022 is 50.8 per cent. By property type, the ratio is 34.9 per cent for detached homes, 64.3 per cent for townhomes, and 62.2 per cent for apartments.

Credit: REBGV