# 2022 Forecast



## Mortgage u/w (Feb 6, 2014)

The 2022 economic forecast of RE in Canada is pointing towards lower sales in units but a higher value appreciation. The drop in sales is due to extremely low inventories across the country. The valuation is strong due to high demand. Still, the ratio of listings to sales remains extremely high - where almost everything being listed is selling.

What astonishes me most is that Canada has experienced record numbers in 2020-2021 while in the midst of a pandemic. The last quarter of 2021 is seeing more normalized levels and this will most definitely continue into 2022. 

The question is how will the spring market unfold and how will 2022 end?


----------



## MrMatt (Dec 21, 2011)

Depends on mortgage rates.

I honestly have no idea, I'm hoping it flattens out, I think it already spiked past reason in several markets.


----------



## sags (May 15, 2010)

People are afraid to sell their homes because they fear they won't be able to afford to buy another one.

The "move up" scenario that drove RE for many years is all but dead. No listings means higher price for what is available.

It is a seller's market both when people sell and when they buy. I think there will be higher interest rates and some defaults, but people will happily gobble them up at a discount. The banks won't lose anything. CMHC will carry on and a few unlucky people will get hosed.

People will hang onto their homes for as long as possible, even if it means living like a monk.


----------



## nathan79 (Feb 21, 2011)

Who knows. Didn't almost everyone predict the market would crash at the onset of the pandemic? It did the exact opposite. Now almost everyone is predicting the market will keep going up, so maybe the opposite will happen again.

I think the pandemic has just magnified one aspect of shifting demographics -- millennials reaching their peak home-buying years -- while distracting from the bigger demographic picture. The current marginal buyer is a dual-income couple making well into the six-figures, but there is a limited supply of those buyers. Fewer young people are getting married and starting families. The majority of millennials have either already bought or are priced out. Single people of all ages are mostly priced out. The zoomers (Gen-Z) are still in college or just starting their careers and won't benefit from the massive transfer of wealth that helped millennials get into the market. Gen-Xers might have the means to buy, but most already own homes. Boomers holding tons of real estate are starting to think about downsizing. Meanwhile, the boomers' parents in their late 70's to early 90's are passing away. We're also in a construction boom with housing starts at more than a 40-year high. Add it all up: diminishing demand in the face of increasing supply. Don't expect immigration to fix this problem because immigration can't overcome demographic trends -- even the government knows that.


----------



## Mortgage u/w (Feb 6, 2014)

In fact, new construction projects of single family dwellings are predicted to decline. OTOH, rental builds are on the rise.
Lots of focus on new generation but I see the opposite. I think a lot of retirees are holding on to their RE which is the main cause of supply shortage. If they don't downgrade, those wanting to upgrade have little room to move.
Immigration has an important role to play. They contribute to driving the first time home buyers market as well as the rental market. They also contribute to maintaining low unemployment but that is not a current issue we are experiencing.

Rates could rise, but I don't see that as a driving factor. It just makes a lot of white noise. Borrowers are already qualifying with a bench mark rate - currently 5.25%, so we have a long way to go before people start using rates as an excuse.


----------



## scorpion_ca (Nov 3, 2014)

Bank of Canada says investor rush into housing risks correction - BNN Bloomberg


The Bank of Canada is warning a rush of investors into the country’s housing market this year has fueled prices and heightened the risk of a correction.




www.bnnbloomberg.ca


----------



## nathan79 (Feb 21, 2011)

Mortgage u/w said:


> In fact, new construction projects of single family dwellings are predicted to decline. OTOH, rental builds are on the rise.
> Lots of focus on new generation but I see the opposite. I think a lot of retirees are holding on to their RE which is the main cause of supply shortage. If they don't downgrade, those wanting to upgrade have little room to move.
> Immigration has an important role to play. They contribute to driving the first time home buyers market as well as the rental market. They also contribute to maintaining low unemployment but that is not a current issue we are experiencing.
> 
> Rates could rise, but I don't see that as a driving factor. It just makes a lot of white noise. Borrowers are already qualifying with a bench mark rate - currently 5.25%, so we have a long way to go before people start using rates as an excuse.


That's shitty, but you're probably right. I was just playing devil's advocate, mixed with a bit of wishful thinking... lol. Thanks for the dose of reality.


----------



## sags (May 15, 2010)

What would the situation have looked like if home owners didn't collect CERB or couldn't defer mortgage and auto loan payments ?

We may be about to find out.


----------



## marina628 (Dec 14, 2010)

My husband and I bought a new construction in January 2021 and listed and sold ours March 2021 for $251,000 over ask. We closed in June went to Newfoundland when we have a home for 5 months and just came back 3 weeks ago to close. The new house is already 30% higher than we paid the builder ,40% if we look at the homes 3 years older and a bit smaller than us.it is definitely insane. My husband retired last year so this is our forever home now, it was not a downsize though 3700 sq ft vs 3800 but smaller lot and no sidewalks


----------



## Mortgage u/w (Feb 6, 2014)

So far, listings are stagnant and at an all-time low. January listings are down more than 20% vs same time last year. Sales are still high due to extremely high demand. And values are still climbing - many areas still experiencing bidding wars.

My opinion is we will see more people refinancing their homes to pull out the equity they've recently gained. Rather than sell to buy another property, they are investing the money to upgrade their current home. Others are investing that money given the financial market is also hot. With interest rates still very low, these strategies make sense.


----------



## doctrine (Sep 30, 2011)

Mortgages rates are rising significantly. I have friends and family that refinanced 12-16 months ago at 1.5% fixed rates. Now those are 3% or maybe going higher? On houses which are much more expensive.

The 5 year Canadian government bond yield, which is strongly linked to 5 year fixed mortgages, just hit a 3 year high going back to early 2019, when housing prices were what, 30-50% cheaper? 

I believe there is a significantly higher interest bill coming to Canadian homeowners. Those who buy today will be paying a lot more interest unless they go variable, which I believe most people are doing, but that leaves them fully exposed to maybe the strongest tightening cycle in a decade, on record high housing prices. Perhaps it can all be absorbed, but it is definitely not the same type of situation that we have seen in the last decade.


----------



## Mortgage u/w (Feb 6, 2014)

^ long term mortgage rates (>5 years) are still relatively low - 3.00%-3.50%. That's somewhat foretelling. Yes, there is a good potential that rates will rise this year, but I do not think it will be as significant as we fear. The market has already accounted for the rate hikes so it will be easily absorbed. Sure, 1.5% vs 3.0% seems like a large spread - but we're still talking about borrowing money at all-time low rates. Home values is a whole other discussion - we're seeing a blimp right now but the curve will flatten out and catch up with time.


----------



## Covariance (Oct 20, 2020)

Mortgage u/w said:


> ^ long term mortgage rates (>5 years) are still relatively low - 3.00%-3.50%. That's somewhat foretelling. Yes, there is a good potential that rates will rise this year, but I do not think it will be as significant as we fear. The market has already accounted for the rate hikes so it will be easily absorbed. Sure, 1.5% vs 3.0% seems like a large spread - but we're still talking about borrowing money at all-time low rates. Home values is a whole other discussion - we're seeing a blimp right now but the curve will flatten out and catch up with time.


You seem informed on this. Question; my understanding is people with a variable actually have fixed payments for the term of the mortgage. What varies is the amount that is ascribed to principal repayment as opposed to interest. Is this a correct understanding? If so at what point do people experience a revised payment? At the end of the term?


----------



## Money172375 (Jun 29, 2018)

Covariance said:


> You seem informed on this. Question; my understanding is people with a variable actually have fixed payments for the term of the mortgage. What varies is the amount that is ascribed to principal repayment as opposed to interest. Is this a correct understanding? If so at what point do people experience a revised payment? At the end of the term?


Yes, that’s correct. In the mortgage agreement, it will articulate a “trigger” rate, at which point, your payments will be revised. It could happen mid-term.


----------



## Mortgage u/w (Feb 6, 2014)

Covariance said:


> You seem informed on this. Question; my understanding is people with a variable actually have fixed payments for the term of the mortgage. What varies is the amount that is ascribed to principal repayment as opposed to interest. Is this a correct understanding? If so at what point do people experience a revised payment? At the end of the term?


A misunderstanding that people have about variable rates is they fluctuate all the time. This is completely false. The payment is calculated the exact same way as a fixed rate. The only difference is a variable rate can increase or decrease depending on the prime rate which is influenced by the Bank of Canada overnight rate. This rate is looked at eight times a year - look up this info and you will even have the exact dates.

The mortgage interest rate is calculated based on the same principal balance of every 6 months. For example, a mortgage of $100k @ 2% will start payments based on 2% of $100k, at the 6 month mark, payments will be based on the new principal balance for the next 6 months. That's why you see some advertisements at 2% interest (2.5% APR). The Annual Percentage Rate takes into account this calculation.

So on a variable rate, the payment is never revised unless the actual Prime rate increases. As you pay down your mortgage, what usually changes is the allocation of your payment between principal and interest.

Normally, half-way through your mortgage amortization is where you start seeing more of your payment being allocated to principal. You pay the most interest at the beginning of your mortgage, if you start with a 25 or 30 year amort. If you start with a 10 or 15 year amort, its about 50/50.

Hope this answers your question.


----------



## Covariance (Oct 20, 2020)

Mortgage u/w said:


> A misunderstanding that people have about variable rates is they fluctuate all the time. This is completely false. The payment is calculated the exact same way as a fixed rate. The only difference is a variable rate can increase or decrease depending on the prime rate which is influenced by the Bank of Canada overnight rate. This rate is looked at eight times a year - look up this info and you will even have the exact dates.
> 
> The mortgage interest rate is calculated based on the same principal balance of every 6 months. For example, a mortgage of $100k @ 2% will start payments based on 2% of $100k, at the 6 month mark, payments will be based on the new principal balance for the next 6 months. That's why you see some advertisements at 2% interest (2.5% APR). The Annual Percentage Rate takes into account this calculation.
> 
> ...


Perhaps an example? Let’s say someone has a five year variable and they are two years in when the prime rate changes. When do their actual payments change?


----------



## Mortgage u/w (Feb 6, 2014)

Covariance said:


> Perhaps an example? Let’s say someone has a five year variable and they are two years in when the prime rate changes. When do their actual payments change?


The payment will change as soon as the lender applies the new prime rate. Most lenders will change the payment automatically. Some have given the option in the past to keep the same payment and simply increase the amortization.


----------



## Mortgage u/w (Feb 6, 2014)

example: take a $100k mortgage @ 2% over 20 years, payment = $505.49/mth.

Prime rate goes up and rate is now 2.25%. Payment will be adjusted to $517.31/mth. 

Some lenders give the option to keep the same payment of $505.49 but will increase your remaining amortization - in this example, they would have to increase it by 6 months to keep the same payments.


----------



## Covariance (Oct 20, 2020)

Mortgage u/w said:


> example: take a $100k mortgage @ 2% over 20 years, payment = $505.49/mth.
> 
> Prime rate goes up and rate is now 2.25%. Payment will be adjusted to $517.31/mth.
> 
> Some lenders give the option to keep the same payment of $505.49 but will increase your remaining amortization - in this example, they would have to increase it by 6 months to keep the same payments.


Most people I would guess are cash flow driven. Do they typically have this second option of keeping the payment fixed and lengthening the amortization?


----------



## Mortgage u/w (Feb 6, 2014)

Covariance said:


> Most people I would guess are cash flow driven. Do they typically have this second option of keeping the payment fixed and lengthening the amortization?


Not typical at all. It may have been popular at the beginning of the pandemic when deferred payments were common. 99% lenders increase the payment.


----------



## james4beach (Nov 15, 2012)

I really think interest rates are going to be the main influence on home prices. I can't believe how many of my friends bought a home during the pandemic, and the rock bottom interest rates seem to have been a big part of that decision.

Nobody can predict interest rates accurately but we're likely going to track what the US Federal Reserve does. Currently the belief is that the first rate hike is coming in March, with a total of 5 to 7 rate hikes this year... roughly +1.5% on the overnight rate, and therefore the Prime rate.

Canadian interest rate futures forecast +1.50% increase in the BoC rate by the end of this year. So if the bank's Prime rate today is 2.5% then we might end the year with a Prime rate around 4.0%.

But I think it's anyone's guess where interest rates go in 2023. If high inflation fizzles out by the end of this year, maybe that's it for rate hikes. If inflation persists, then we've got more significant problems and the Prime rate could keep increasing into next year.


----------

