Expert roundup: Canadian housing market insights and trends in 2022

If you’re a homeowner or buyer in Canada, the last couple of years will have felt like a whirlwind.

First, mortgage rates were slashed in the early days of 2020, as COVID-19 made its way around the world, crippling global markets and halting consumer spending. Then, average home prices propelled to heights not seen before, where they remained for the better part of a year-and-a-half. Fast forward to today and home prices continue their consistent month-over-month descent as we await what is widely anticipated to be the sixth interest rate hike of 2022, which would push us beyond the current overnight rate of 3.25%.

What happened? And more importantly, where are we headed?

To make sense of the rollercoaster that is the Canadian housing market, we turned to five real estate industry experts to shed some light on how this year's rate increases are impacting buyers and owners, whether fixed or variable is the best mortgage choice, and how to make ends meet with persistent inflation.

Meet our real estate industry experts

To get a sense of where the market is headed based on what we’ve seen so far this year, we turned to the following five industry professionals to get their take:

• Christopher Alexander — president of RE/MAX Canada
• Karen Yolevski — COO at Royal LePage Real Estate Services Ltd.
• Robert Marsiglio — real estate sales representative at Keller Williams Referred Realty Brokerage
• Patti Cosgarea — public relations and content marketing manager at Zoocasa
• Dave Elfassy — real estate broker at Team Elfassy

We put four questions to our experts:

1. How are the recent interest rate increases impacting homeowners and buyers?
2. What should buyers choose in the current market: a variable or fixed mortgage?
3. Do you see any exclusive real estate trends in 2022?
4. What advice do you have for current homebuyers or homeowners to hedge against inflation?

Here’s what they had to say. (Note that some responses have been edited and condensed for clarity.)

Christopher Alexander — president of RE/MAX Canada

Rising interest rates have taken some air out of Canada’s housing market, with sales and prices moderating as a result. According to a new consumer survey commissioned by RE/MAX Canada, 44% of Canadians said rising interest rates have prompted them to put their fall home-buying aspirations on hold. The good news is we haven’t seen mortgage defaults spike or a rapid influx of new listings flooding the market, which indicates the mortgage stress test has done its job.

With the Bank of Canada hiking interest rates five times this year and the potential for more increases ahead, many Canadians who opted to sit with a variable-rate mortgage are now looking to lock in, insulating themselves from further fluctuation and uncertainty. There’s no one right answer and there’s no crystal ball.

My best advice for homebuyers is to consult their financial planner or mortgage professional, assess their risk tolerance, and then make an informed decision that they are comfortable with, financially and emotionally.

The current downward trend [in home prices] is only temporary. Until housing supply increases, these “boom” and “bust” cycles will likely be a recurring event. Don’t panic in the face of interest rate fluctuations, high inflation, and short-term market trends. Real estate isn’t prone to the same fluctuations as other forms of investments, so it’s historically been a solid place for Canadians to park their money for the long term.

Karen Yolevski — COO, Royal LePage Real Estate Services Ltd.

Since early 2022, we were in an exuberant period with really high sale prices and a lot of competition. Gradually, we started to see a quiet period in late spring and early summer; people were talking a lot about prices, and we saw sales activity drop dramatically, which was unusual for summer.

Currently, market activity is low compared to what we have seen in previous years. More interestingly, we don’t see inventory overtake the number of sales. We are seeing inventory remain low and less competition, which is a welcome relief for buyers.

In the current market, getting a pre-approval loan can give more confidence to homebuyers. It will let them know how much they can borrow and get a reasonable estimate of how much they can afford to spend.

Robert Marsiglio — real estate sales representative, Keller Williams Referred Realty Brokerage

Homebuyers are feeling [the rate increase] on two different levels. First, from an affordability perspective, the amount that a potential buyer can qualify for as a result of rate increases is down. Second, homebuyers are feeling it psychologically. Nobody wants to buy an asset only to see its value go down instantly. Buyer confidence is extremely low.

Homeowners, on the other hand, fall into a number of buckets. Mortgage-free homeowners are experiencing increases in everyday expenses as a result of inflation, but they don't have a mortgage to worry about. Their homes aren't worth as much today as they were in March, but chances are they bought them a long time ago. While they don't have as much equity, they still have a lot. Those with fixed mortgage rates won't experience any change in housing costs until it’s time to renew. The people who stand to see the biggest increase in mortgage payments in the future are the people who locked in fixed rates over the last couple of years.

Last are people with variable-rate products. People with adjustable payments have experienced an increase in their monthly mortgage payment already. If you make fixed payments, your monthly payment probably hasn't changed yet but you’re no longer paying as much toward the principal of your loan and only servicing the interest. For some, the payments aren't even covering the interest portion and they’re at risk of reaching their trigger rate.

If you’re considering buying in this market, ask yourself these three questions first:

1. Am I confident that I will stay employed as we enter a potential recession?
2. Am I fine with the idea that my house may be worth less than the price I bought it for in a few months?
3. Can I see myself living in this home for a long time?

Patti Cosgarea — PR and content marketing manager, Zoocasa

Before [buying a home], first determine if this is a long- or short-term investment. It’s becoming more difficult to qualify for shorter mortgage terms. Many lenders are offering five-year terms, but two and three-year terms tend to have comparatively higher interest rates. For this reason, it’s important to determine if you’re planning to stay in your home for the entirety of your mortgage term. One of the benefits of a variable-rate mortgage is that homeowners can often break their mortgage early. There may still be pre-payment penalties, but they tend to be lower than what those with a fixed mortgage could face.

Next, evaluate your finances. Consider your job history and whether your current position is stable or if you may enter the job market in the future. Estimate your monthly expenses and determine if you have a financial cushion that allows for some wiggle room in monthly payments if they were to go up with a variable-rate mortgage.

Thirdly, shop around to get the best rate. There are many websites that allow you to compare mortgage rates from a variety of lenders. It’s important to shop around to learn what options are available for you for both types of mortgages.

And finally, talk to the experts. A financial planner, mortgage broker, or trusted real estate agent are all great resources that can help you navigate rising interest rates.

Dave Elfassy — real estate broker, Team Elfassy

[As a result of the rate increases], buyers wind up qualifying for a lower loan amount, which may lead to difficulty finding a home that suits their needs. Higher rates also mean higher mortgage payments, and with inflation rising, this prices out buyers from the market. Because of this, it could take longer for offers to roll in on sellers’ homes. It could also lead to lower selling prices.

Historically, variable-rate mortgages are more beneficial in the long-term compared to fixed-rate mortgages. That said, with rising interest rates, high inflation, and job insecurity some people may take comfort in knowing exactly what their costs look like.

I’ve seen major shifts over the last 14 years but specifically in 2022, these are some of the major trends:

• Bidding wars are no longer the main strategy used for selling properties. Buyers simply do not want to compete in a softening market.
• Established agents and brokerages will account for the majority of sales/transactions. It’s become more challenging to sell properties and a lot of the part-time realtors that cashed in over the last couple years will leave the business.
• Home sales are dropping but prices will stay steady as inventory levels drop.

Don’t panic. This too shall pass.

A big thank you to our expert contributors.

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DISCLAIMER: This article is not intended to provide binding real estate or mortgage advice. We’ve sourced insights from industry experts who we believe to be trustworthy, but this does not substitute guidance or information from your own mortgage broker, bank, or real estate agent. It is provided for informational purposes only and is not exhaustive.