Happy New Year Everyone!
Here is to hoping that 2022 treats us well.
At the beginning of the year there was a lot of uncertainty everyone had when it came to the Toronto real estate market.
I made a prediction on what I thought would happen in 2021 in February that you can check out on my Instagram.
In this post I will show you my 2022 prediction!
2022 Toronto Housing Market Prediction
I foresee that prices will go up another 5-10%. If the housing market goes past this percentage increase, I think that the government will finally step in, intervene, and adjust the prices. With the upcoming election, the main political topic that will be up for major discussion will not be job growth or health care. The most important topic will be to solve the ongoing housing problem that we have in the GTA. Because I think the government will finally intervene, I am predicting the market will only grow around 5-10% compared to the previous years.
The price will still remain pretty high. Material costs are already being affected by not just COVID-19 shipment delays but inflation as well. It is already affecting the price of raw materials. The Bank of Canada federal reserve is printing significantly more money than before. So I won’t be surprised if the price of raw materials increases again due to the fact that every country is craving for more structural policies to increase the government’s spending on infrastructure so that their economy can recover.
Compared to pre-COVID-19 prices, I foresee the raw materials increasing by up to 50%. I can say with 100% certainty that the raw material prices will go up by at least that much. If you have been keeping up with the cost of raw materials recently, wood and lumber costs a lot more than previous years. Here is an excerpt from the Statistics Canada website describing the quarterly increase in price of raw materials.
Building construction price indexes, quarterly change
“Construction costs were up for every building type in the first quarter, ranging from a 1.2% increase for office buildings, to a 6.9% gain for townhouses, followed closely by single-detached houses (+6.8%).
Higher construction costs overall were mostly attributable to a shortage of construction materials, which led to higher month-over-month prices for softwood lumber (+11.9%) and veneer and plywood (+20.1%) in March. Softwood lumber (+118.9%) prices rose at their fastest year-over-year pace on record in March, partially because of low stocks following the temporary shutdown of sawmills during the first wave of the COVID-19 pandemic. The demand for materials continued to be high as building materials and supplies sold by wholesalers were up 19.1% year over year in February.”
Prices for industrial products increase
Among the major commodity groups, the lumber and other wood products category contributed the most to the gain in the Industrial Product Price Index (IPPI), up 10.2% from February and up 68.2% from March 2020. Softwood lumber (+11.9%), veneer and plywood (+20.1%), and reconstituted wood products (which include medium-density fibreboard [MDF]) (+11.6%) all increased. The price of Canadian lumber is influenced significantly by housing demand in the United States, where, seasonally adjusted residential housing starts rose 19.4% in March compared with February. In Canada, seasonally adjusted housing starts were up 21.6% in March.
Prices for raw materials rise
Are we in a Real Estate Bubble?
According to the UBS Global Real Estate bubble Index, Frankfurt, Toronto, and Hong Kong are this year’s top three cities most at risk of a housing bubble. The key indicators of a bubble are as follows:
1. Over Supply
No, we can clearly see that there is no oversupply in the Toronto Market
2. The increase in home prices outpace inflation and wages
This is correct as we see that home affordability is becoming harder and harder. Home price increases are outpacing wage increases.
3. High number of subprime mortgage
No, I don’t think so
4. Investors and flippers are everywhere
Potentially, because we see a lot of flippers in the industry. But investors that we see over the past few months are people who are purchasing a home for their next generation and not themselves.
5. Rising mortgage interest rates
We will see this happen very soon, but as of this moment not yet.
Lack of Supply
As we can see from this chart, in the 1970’s almost every new Ontarian coming in was able to own a house. In the past decade this number has significantly dropped. Let us take a look at the recent years. For the period of 2016 to 2021, for every 100 Ontarians coming in we only have 36.9 housing units available to them. This is telling us that we are really short of supply.
Since 12 years ago, in Ontario, we have been short of supply in terms of comparison to demand. In the last few years it has been at its worst, the rate at which the demand for housing outpaces our supply is at an all time high. To understand this we have to talk about Canada’s immigration policies and position as a country that immigrants are likely to come to. Our large demand for housing in Ontario can be attributed to our immigration policies and our low birth rate. If we do not take in new immigrants our population will decrease leaving no one to pay for our health care system, retirement plan, etc. Every political party in Canada understands this. In general our immigration policy is pretty straight forward, we need a lot of immigrants as a country to sustain our economy.
Since 2020, when COVID-19 hit us, we were supposed to hit targets of 330,000 immigrants coming into Canada. Due to the worldwide pandemic we were unable to reach these targets. In the year 2021, the government decided that to fill in this gap they changed our immigration policies. For the next three years they were going to increase the amount of immigrants coming in.
In three years they want 1.25 Million immigrants to come to Canada. As Ontarians we know that a lot of these immigrants flock to the GTA. A lot of people with not a lot of housing options right?
We need at least 55,000 new housing units to cover this influx of new immigrants. Despite this in the last 10 to 12 years we have been short every single year. In the worst case years, we are more or less short 10,000 units, in better years we are short around 5,000 units. So our building capacity has never caught up to the demand.
Now you might be thinking, Ontario is quite a large province, let alone Canada. Why can’t we build more homes quickly?
Why are homes in Ontario built so slowly?
As far as the land is concerned, in Ontario, the government has come up with a lot of new policies that restrict building outward. A few that you may have heard of are the famous green belt policy, and other policies that restrict farmlands from being converted into living units.
One of the biggest factors that affects our supply is that the Ontario building industry is a very union heavy industry. In order to protect everyone and their high salaries, the union has always been very restrictive with allowing newcomers into the industry.
So adding all these factors together create our incredible lack of supply. Everyone who has taken economics 101 will know this, if the supply is higher than the demand, the price will drop. But if the demand is so high, like what we are witnessing currently in Toronto, the price will never fall significantly. There may be tiny adjustments
For the last 2 years in Ontario we have had the lowest interest rate in the entirety of Canada. What we are more interested in is the mortgage rate. Mortgage rate is a reflection (however not a 1:1) of the Bank of Canada Interest Rate. The Bank of Canada Rate is currently at a historical low, 0.25%.
We can see that in terms of the Canadian government we will be staying at this rate for a while. From all the experts in all fields of the building, home, and real estate industry. Everyone agrees that we will see an interest rate increase. However, the question is how much?
The first hike we might see is in the Bank of Canada rate. It will most likely jump .25% in the first hike. The highest prediction for the jump will be adding .75% to the current rate, making the Bank of Canada rate 1%.
With Omicron affecting Canada, some experts also predict that yes there will be a hike but between the range of 0.5% and 0.75%.
How will each market be affected?
- Price of condos will increase more than freeholds
- Larger condos will gain more popularity due to other housing types becoming unaffordable
- Townhouse and freehold detached homes will be cooling off, followed by government intervention (just like in 2017)
- We will see a correction of 5%-10%
- Will start to lose popularity due to unaffordability
- Upcoming Ontario election will also play a huge role
- I personally think that the townhouse and freehold market have been increasing too much. If we take a look below we can see a comparison of two similar townhomes sold approximately a year apart.
In 2 years a house went up almost doubled in price. This is not indicative of a healthy market.
And honestly, the cost of building a freehold townhouse and a freehold detached is way less than building a concrete building (condos, stacked townhouse).
Who will be the buyers in 2022?
- First time home buyers
- Slight decline in investor purchases due to the uncertainty and chaos that is happening around the world. This does not mean that they won’t buy. We do see a lot of investor purchases are going towards the buyer’s next generation
Finance & investing
- People will start to look for more ways to fight inflation
- Methods to do this may include gold, cryptocurrency, and real estate
- Invest in land and subdivision
- Become a limited partner
- Alternative investment other than buying a pre-construction or other properties.
Investing in land development is a good option for investors who want to make some good money but do not want to develop the land themselves, look for the land etc.
Conclusion of 2022 Prediction
- We will see a moderate market with less volume compared to before
- Condo will increase relatively faster than low rise
- Downtown condos/stacked townhomes will become very hot products
- Interest rates will rise causing the sentiment of the market to change, but not drastically.
Advice for first time home buyers
- Buy first instead of waiting for your dream home
- Lock down your price ASAP
- Because as time goes on, the price of your dream home will go up but so will the home you own, allowing you to be able to afford more of a down payment
- Be more optimistic on how much you can afford
- If you are a new graduate technically your income will rise, giving you more purchasing power.
I helped a client purchase her first home back in 2015. It wasn’t her dream home, but it was for $400,000. And then just last year, she purchased a $2 Million dollar home from me because she was making a $500,000 profit on her first home purchase as well as her and her husband’s income going up within that time.
Advice for Investor
- Doesn’t matter what you want to do, if you sell or buy, be prepared for next year
- Take a look at your mortgage now, check your finances, be prepared for anything you would want to do financially in the coming year.
- Price is going up, you can also try to minimize your risk and improve your portfolio by making a partnership
- This can help you get into the market faster than if you were to do it alone.
- Be careful of your investments
- Avoid projects/properties with huge volatility
- Be more conservative when purchasing
Advice for Upszing
Hold on till later this year
Try to buy and sell at the same time
Currently not many options available on the market
DO NOT BUY FIRST AND THEN SELL
We never know when the government will intervene, so pay attention to the news or let me know and I can keep you in mind and provide updates on changes in the market tailored to your needs!
Thank you for reading!
If you have made it this far, thank you for reading about my prediction! If you like this kind of in depth content let me know!
If you want to stay updated on the market, follow my youtube channel or contact me through any of my social channels: https://linktr.ee/ringotsang
Call: (647) 638-9210