When you look at what determines the price of a home, it is often set by the neighbourhood it’s in, the size and style of the home and the quality of the finishes inside. Those key factors point to the value of a home in the real estate market where it resides, and the price is what people are willing to pay for the home of their dreams.

As 2021 winds down, many experts and analysts have forecast a continuation of rising prices in Canadian real estate, especially in desirable city centres such as Vancouver and Toronto. In November 2021, the average price of a resale home in the Toronto region was $1.16 million, which is up 22 per cent from the previous year. Pricing in the new construction sector usually tracks close to resales, reporting a little less than the average resale numbers.

During the pandemic, the GTA’s robust real estate market continued to hold strong. Ultra-low mortgage rates and demand for larger homes with backyards, balconies and room to create a home office offered people the chance to take a second look at their living space.

With demand outpacing supply in the GTA, prices continue to rise. If interest rates rise next year, buyers have an incentive to get into the market and that creates competition, which nudges up pricing. Lastly, the sourcing of materials and supply chain challenges of this past year will continue into the next year, impacting pricing and the ability to get more homes into the market to quell the demand.

To expand more on three reasons home prices could increase in 2022, we’ve rounded up some expert opinions in the real estate and financial industry.

Demand Outpacing Supply

Canadian home prices are expected to rise by 10.5 per cent in 2022, with Toronto, Vancouver and Halifax projected to see the largest increases.

What’s more is that the forecast follows a record-breaking year in 2021, according to a survey from real estate firm Royal LePage.

Royal LePage also anticipates the median price of a single-family detached home in Canada to climb by 11 per cent to $918,000 in 2022, while condominium prices are projected to grow by eight per cent to $594,000.

In Canada, price predictions show homes will be the most expensive in Greater Vancouver ($1,375,700), Greater Toronto ($1,256,500) and Ottawa ($806,600), while the lowest prices are expected to be found in Winnipeg ($372,100), Regina ($376,300) and Edmonton ($429,000).

The biggest increases are expected in the Toronto and Vancouver areas, with the price of homes rising by 11 and 10.5 per cent. They’re followed closely by Halifax at 10 per cent, which Royal LePage says is driven by out-of-province demand, largely from Ontario.

In a market characterized by low supply, Royal LePage president and CEO Phil Soper says the increases will be driven by eager buyers who were unable to secure homes in 2021, rising immigration, as well as low interest rates and a continued emphasis on remote work as COVID-19 variants stifle Canada’s reopening plans, causing people to save more money as travel and entertainment options diminish.

“Many of those looking to purchase a home, whether their first, an upgrade, or a recreational property, stand able to take advantage of increased savings and record-low interest rates.”

On the new construction side, inventory for single-family homes is low and the tight inventory contributed to another record in the benchmark price for new single-family homes, of $1,656,043 in October 2021, which was up 36.7 per cent over the last 12 months.

“Several factors are contributing to the shortage of new single-family home supply in the GTA, including a lack of serviced land, supply chain issues and labour shortages,” says Justin Sherwood, from the Building Industry and Land Development Association.

“As municipal and regional governments go through their municipal comprehensive reviews and Official Plan processes, they need to ensure they are planning for appropriate housing supply and choice for future residents.”

ROYAL LEPAGE REPORT: https://www.royallepage.ca/en/realestate/news/royal-lepage-canadian-home-prices-soar-as-persistent-supply-shortage-results-in-continued-sellers-market/

Changing Interest Rates

Major banks have already started to raise their fixed mortgage rates, and the Bank of Canada has suggested it will increase the benchmark interest rate earlier than it had previously forecast.

When people see interest rates changing, and in current times, increasing, it becomes a major motivator tracked throughout the resale and new home buying markets. This surge creates competition, which impacts pricing.

A rush to purchase homes ahead of expected increases in Canadian interest rates next year is boosting the housing market in the final quarter, with prices skyrocketing compared to the year-earlier period.

“Affordability is unlikely to improve next year as prices should march higher, even as interest rates creep upwards as well,” says Rishi Sondhi, economist at TD Economics, who expects house price inflation to slow next year.

For many first-time home buyers, prices have climbed beyond their reach and a supply shortage of housing units has only aggravated their woes. Additionally, the price appreciation gap between condominiums and detached properties is narrowing.

“This trend will continue in 2022, as entry-level buyers are priced out of more expensive property segments, and the revival of the downtown core continues,” says Royal LePage chief operating officer Karen Yolevski.

Sourcing Materials and Supply Chain Disruptions

The supply chain shortage that has affected consumer goods over the last half of the year, has also impacted the construction of new homes.

Builders are challenged to source the materials they need to construct homes, as well as the finishes that go inside like appliances, faucets and more.

First-time buyers and those who purchased a fixer-upper or those who are renovating their current home are struggling to get the same lumber, plumbing parts, and finishes too.

“These supply chain issues will absolutely continue into 2022, but may begin to ease as we head into 2023,” says Robert Dietz, chief economist of the National Association of Home Builders in the U.S.

A housing market research firm in the U.S., Zonda, surveyed builders and about 91 per cent of the homebuilding companies reported struggling with the supply chain problems.

It is having the same impact north of the border as well. The lack of material availability is making it take longer to build a home, and the delays and higher input costs are contributing to rising home prices.

“The housing shortage and accompanying high prices are not likely to go away as long as the products that construction companies depend on don’t arrive on time,” says George Ratiu, manager of economic research at Realtor.com®.