What can we expect from the housing market for the rest of 2022? The first two months of this year have seen some record-breaking prices in the Greater Toronto Area. People are now starting to move back to live closer to their work. Let’s take a look now at what’s currently happening in the market and how it would look like for the rest of the year.
Price to increase by 12%
According to The Toronto Regional Real Estate Board (TRREB), home prices could go up by 12% this year. The average selling price for all home types is expected to reach $1,225,000 within this year. In a year-over-year basis, single-detached homes have seen the greatest price increase with last month's $1,797,203 compared to $1,371,791 of February 2021. It is then followed by townhouses that reached $1,121,641 from $858,025 while condo prices increased to $799,966 from $642,346 the previous year. Clearly, it is a strong seller’s market and will likely remain so unless supply and demand strike a balance in the housing market.
Interest rates to increase further
The Bank of Canada has increased the key interest rate from 0.25% to 0.50%, a hike that's expected to be the first of many rate hikes before the year ends. The inflation rate rose to a record high of over 5% last month, and there's a high chance that the Bank will act aggressively in increasing the interest rate to tackle the inflation. This is the first time the bank has increased the interest rate since 2018 which was at 1.75% but later on lowered to near-zero at 0.25% during the pandemic. As of now, fixed rate mortgages have risen gradually since the beginning of the year by as much as 34 percent and might continue to increase for new mortgages if the bond yields increase upwards.
Both these rates can have a dampening effect on the overall housing market in the GTA and Canada in general but we will have to wait and see how that shapes up in the next few months.
Limited housing supply will continue
The market seems to have slowed down with a smaller number of showings in the recent weeks. Last month's sales were just at 9,097, a decrease of 16.8% compared to 10,929 of February 2021. The limited supply of listings was one of the reasons. Another thing is that the current inflation makes it difficult for buyers to enter the market, even more so now with the increasing interest rates. Whether this will result to decreasing prices or not remains to be seen.
The increase in interest rates can also have an impact on demand in two ways, either the demand will go low when homebuyers decide to put homebuying on hold or, it could go the other way if buyers decide to buy now instead of waiting for the rates to rise further. There are signs of slowing down in the market, with multiple offers for listings have reduced to almost nothing. Again, as I said before, will this be a temporary effect of recent rate increase remains to be seen.
Other things that might affect demand later on need to be taken into consideration as well, like the increasing employment and income, as well as immigration which is projected to be over 400,000 this year.
So, these are the main indicators on how the Toronto real estate market will turn out for 2022. As of now, there are very few homes on the market but there seems to be a wait and see approach on the buyers' side, too. We know that the housing market always goes through cycles, and right now we are seeing a slight cooling down in the market since the beginning of March.
With economists predicting that there will be likely five more interest rate hikes within the year, now might be the best time for you to get into the market before the interest rate go up very high.
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