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What is going to happen in Real Estate in 2022?

No one can look into the future and predict with 100% accuracy what is going to happen in 2022, but let’s look at the influences and in this case we can get a good idea of where it is going. There are a few wild cards in play that could change everything. Unfortunately it is not likely for the better.

First, what is influencing the current state of the market?

The thing that is currently having the largest impact is the limited number of properties available for sale. In some markets there has been as little as 2 weeks’ worth of inventory. Allow me to explain. Let’s say Burlington has a total of 100 properties for sale and every week 50 properties sell. Without any new properties coming on the market, all 100 properties would be sold in 2 weeks time. Those numbers sound unrealistic but in reality there were 88 active listings and 227 sold properties in November 2021. Don’t panic, during this time there were 241 new listings that came on the market. There are always resale properties coming on the market, just much fewer than historically common. New builds and renovations face red tape and government interference which limits developers and slows them down. We could go into much more detail, but that would be an entire article on its own. So let’s move on.

Currently the market is seeing 3 main types of motivation for buyers: Investment, fear, and emotion.

Banks are keeping interest rates low to keep the economy propped up. Cheap money is very appealing to those who are not suffering financially and can take advantage of these lower interest rates. This leads to motivated investors looking for investments.

Then there are those that think it best, or are unfortunately given unwise advice to sell before they buy. They want to know how much of a budget they have to put towards their own purchase. This can lead to buyers who are facing a deadline. They are closing on a set date and if they do not purchase a home by that date, they are essentially homeless. These are the truly desperate buyers who bid out of fear and are willing to go well over the asking price.

You also have first time home buyers who are having a hard time due to rising prices. The Government is stepping in trying to cool the market with different programs. The problem is, these stress tests and other policies are making it more difficult for first time home buyers as well. The Government though, is still trying to introduce more policies to make it easier or fairer for the first time home buyers. They are implementing policies such as banning blind bidding, or making home inspections a right for the buyer. While these may sound promising, they tend to lead to increased purchase prices making it even harder for these buyers. They still want to buy, but see the prices slipping out of their budget. This leads to frustration, which leads to emotional bids out of desperation which tend to be well over asking.

We also have immigrants coming to Canada to start a new life for their family here. Part of the process of setting roots is to find a family home. This also helps them establish themselves financially and helps build their credit. Technically they are first time home buyers as well, but often older and more financially secure. This category of buyers is growing. According to immigration Canada, the Government has an ambitious strategy for immigration in 2022. This influx will increase the numbers of people looking to buy.

To put the pieces together, we currently have an incredibly low number of properties available for purchase, incredibly high demand to purchase from investors, buyers motivated by fear and/or emotion, and people looking to set roots in a new country. This level of demand causes a feeding frenzy over what is available. This is what we are looking at as we enter 2022 and it is not going to change any time soon.

Here are the wild cards:

Number 1 is the Government. They are going to try many things such as excessive rent surplus, anti-flipping tax, reviewing tax incentives for Real Estate Investment Trusts (REITs), reviewing investor down payment requirements, and a temporary ban on foreign buyers. You can read more about it HERE (https://betterdwelling.com/the-canadian-government-just-put-real-estate-investors-in-its-crosshairs/). All of this is on top of the promises made during the election which are still to be seen. You can read up on them HERE (https://liberal.ca/housing/). So what is all this Government meddling going to do to the market? Well it is not going to make it easier to purchase a home for anyone involved, especially if you are an investor.

Number 2 is the pandemic. People are afraid and at the same time, they are tired of being afraid. What will happen if we get another wave or another lockdown? How will that affect the market?

Number 3 are the interest rates. Is the Bank of Canada going to keep the rates low to help prop up the economy or raise it to cool the real estate market? Fixed rates are already starting to climb and there is talk of rates going up in the middle to late quarters of 2022.

What is going to happen in 2022? Our trajectory is pretty strong but the wildcards can really affect the market. Hopefully whatever the Government or Bank of Canada does will help us more than it hurts us. Sometimes though, the medicine tastes worse than the illness.

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