Outlook 2022 – GTA real estate poised for another strong year

A year ago when we were preparing our Outlook 2021 coverage, we – and virtually all of the sources we quoted in our report – were beyond surprised at how well the previous year had finished, and how strong the market looked for 2021. RBC went as far as to call 2020 “easily the most surprising year in the history of Canada’s housing market.”

During a pandemic.

Well, here we are again, and the outlook for 2022 is for – if you can believe it – more of the same.

“I continue to be shocked by how hot the new home and condo market has been over the past 18 months,” Ben Myers, president of Bullpen Research & Consulting Inc., told NextHome.

Indeed, as our coverage elsewhere in this issue and within this Special Report: Outlook 2022 illustrates, the economy and housing markets in the GTA and surrounding areas continue to defy the odds and perform remarkably.

Also hard to believe is that it’s all happening – unfortunately, still – during an ongoing pandemic. The new home and resale markets continue to perform at staggering numbers, the challenges of COVID notwithstanding.

The market challenges, whether brought on by COVID, policy or supply chain issues, are not to be overlooked. They are serious, but that further speaks to the strength and resilience of the GTA.

Here’s a number of considerations as to why 2022 is poised to be another strong year for GTA real estate – with expert commentary – and some of the challenges to be aware of.

HOUSING AS AN ELECTION ISSUE

The federal election last September proved that housing has rightly become a major concern. All kinds of major bodies, from realty firms to builder associations to economists, have long driven home the point that the issue – lack of supply and deteriorating affordability – needs serious attention. Prime Minister Justin Trudeau can no longer ignore the facts, and the Liberals put forth a number of programs to address the matter.

Now comes the opportunity to make the point at the provincial level, on June 2, and in municipal elections, on Oct. 24.

“In the GTA, with housing inventories at near-historic lows, high demand for homes and rapid price escalation, housing supply and affordability will rank alongside COVID-19 recovery as defining election issues,” Dave Wilkes, president and CEO of the Building Industry and Land Development Association (BILD) told NextHome. “Insufficient housing supply exacerbates inequality, places a drag on economic growth and threatens the collective quality of life in the economic heartland of Canada.”

The broad consensus is that lack of housing supply is driving the GTA’s affordability challenge. The causes of the supply dilemma are multifactorial and complex, but are rooted in constrained land supply, lengthy building times driven by unnecessarily complicated and bureaucratic approval processes and a tight supply of skilled labour.

Any long-term solution must be firmly rooted in supply, rather than the tax-and-restrict approaches of trying to cool demand for housing, Wilkes says. Past attempts to cool demand have had short-term, muted impacts at best and created more, not less, burdens for prospective new-home buyers.

“Now that we’re in 2022, we should be wary of anyone who claims that adding taxes or other restrictions will increase affordability. Instead, we must be looking for solutions that will increase housing supply by addressing the root causes of land supply constraints and approval times."

PREPARE FOR RISING INTEREST RATES

A number of experts foresee multiple interest rate hikes in 2022, in part to tame rapid home price growth and inflation, and to quell any market instability due to COVID.

“Fixed rates have already increased by close to a percentage in the last six months,” says Jesse Abrams, co-founder and CEO of Homewise. “So, looking into 2022, we may see slight increases to fixed rates, and up to a one-per-cent increase to variable rates, if the prognosticators are correct. This is a good time to lock into a fixed rate if you are comfortable with it.

“With home prices rising at uncontrollable levels, rate hikes are an immediate way to attempt to stabilize the market. So, if I were a betting man, I would expect three to four increases in 2022.”

The next rate announcement from the Bank of Canada is Jan. 26.

THE RESILIENCE OF THE GTA ECONOMY

A strong economy, and the underlying fundamentals, are everything when it comes to real estate and the demand for housing. Economic growth produces job opportunities, which leads to population growth, housing demand and new home development.

And though it may surprise you, during the pandemic, the economy here has continued to roar along. In fact, according to the Fraser Institute, an independent, Canadian public policy think-tank, job growth in the GTA exceeds the national average. Other parts of Ontario are a little more challenged.

“Given the sheer size of the Greater Toronto Area and surrounding communities, it is easy to miss the economic challenges faced by many other parts of Ontario when looking at province-wide economic statistics,” says Ben Eisen, senior fellow at the Fraser Institute.

In the context of real estate, the GTA continues to be a high performer.

“Investors continue to seek out opportunities in smaller municipalities, and developers are offering more Toronto-style developments in the 905 and even the 519 areas – very small units, lots of amenities and high-quality interiors,” says Myers.

“Increases in construction materials and labour, government fees and new planning requirements continue to push up costs at an unprecedented level, leading new condo prices to rise faster than resale pricing. This will ultimately result in a reduction in purchases by investors that intend to hold shorter-term.”

Smaller developers may push back their launches until there is more certainty and stability in terms of construction cost inflation, Myers says, and the Omicron variant may temper some of the 2021 enthusiasm by investors. Lastly, so much product came to market in 2021, that there is not as much in the pipeline for 2022, as many developers concentrate on finishing their existing projects and not stretching themselves too thin. Bullpen is forecasting a sales year closer to the 10-year average, but continued price growth in the range of four to seven per cent annually.

THE STRENGTH OF ONTARIO REAL ESTATE

Strong home price growth in expected to continue in Canada this year, with Ontario leading the way. According to the 2022 Canadian Housing Market Outlook Report from ReMax Canada, average residential sales prices across the country will rise 9.2 per cent, thanks largely to the ongoing housing supply shortage, inter-provincial migration and other factors.

“The inter-provincial relocation trend that we began to see in the summer of 2020 still remains very strong and is expected to continue into 2022,” says Christopher Alexander, president, ReMax Canada. “Less dense cities and neighbourhoods offer buyers the prospect of greater affordability, along with livability factors such as more space. In order for these regions to retain these appealing qualities and their relative market balance, housing supply needs to be added. Without more homes and in the face of rising demand, there’s potential for conditions in these regions to shift further.”

Despite the global pandemic, many Canadians still feel confident in the real estate market. According to a Leger survey conducted on behalf of ReMax Canada, 49 per cent of Canadians believe real estate will remain one of their best investment options in 2022. Additionally, 49 per cent of Canadians are confident the market will remain steady next year.

Market activity across Ontario is expected to remain steady in 2022, with continued average price growth, although at widely varying degrees.

ReMax anticipates average sale price increases in smaller markets such as Collingwood/Georgian Bay (10 per cent) and Muskoka (20 per cent) to be driven by the move-over trend. In larger markets, such as Durham (seven per cent), Brampton (eight per cent), Toronto (10 per cent) and Mississauga (14 per cent), the key driver is likely to be immigration.

INCREASING OPPORTUNITIES

There is no question that the real estate market in Toronto will remain strong in 2022. One of the benefits of living in such a popular destination in Canada is that real estate opportunities have been consistently increasing year over year, and every indication shows that this should continue for years to come. While this comes with its own set of issues (such as affordability and availability), it’s a great thing for our city overall.

As Toronto continues to develop an internationally renowned reputation as a living destination, housing and affordability will remain controversial topics. With all the challenges we have experienced over the course of the pandemic, we now see homeowners placing increased importance on where and how they are living, further increasing demand and prices. My advice to prospective homebuyers is to get into the market as soon as possible, because prices will continue to rise. Of course, each person's propensity to purchase is different based on their spending power, and while pre-construction may not be an immediate solution, it is a great option for many, as it allows purchasers to spread out their deposits throughout the construction process.

Jordan Debrincat
Vice-President
Altree Developments

CONTINUING MARKET DEMAND

As Toronto continues to be the most livable and opportunistic city in Canada, many of the record-high federal target of immigrants in 2022-23 are likely to choose Toronto as their home. Coupled with the returning of international students and other newcomers, we anticipate the demand for housing will continue to outpace the supply side of the equation.

While the general sentiment for interest rates will be hawkish, in order to combat inflation, we expect that any practical schedule of increases shall not derail the fragile economy, and the returning of employment level shall help to cope with logistic-driven inflation. Also, although the global outlook for COVID may be uncertain, the high vaccination rate in the city is important, and any necessary lockdowns in the province should be more short-lived than previous ones.

Looking forward, we understand the world is gearing towards NetZero in the foreseeable future, and Aoyuan will work towards developing more technology and environmentally advanced products.

Sunny Bao
Lead Project Manager
Aoyuan International
(Eastern Canada)

EVER-INCREASING POPULATION

Projecting the real estate market across the GTA in 2022, from the construction point of view, we foresee a continued strong market – especially for grade-related, single-family homes. One of the greatest challenges will be delivering completed homes under construction because of the shortages in the supply of building materials, as well as a real labour shortage. High schools need to encourage more qualified students to go into the trades, which provide a good career path for them and fill a desperate need for trades.

With ever-increasing population growth across the GTA and the corresponding need for places to live, builders also continue to be challenged by the sclerotic and complex municipal review process, which can go on for years and prevent a builder from proceeding to construction and providing much-needed homes.

Luke Johnston
Executive Vice-President of Development and General Counsel
Dunpar Homes

PRESSURE ON PRICES

Flato continues to see high demand for the homes and apartments we are building in various communities in Ontario.

We recently advertised a new phase of detached homes, and sold out in just one day. This shows a continued appetite for new homes, even as prices continue to rise. There is a high demand for more space and being part of a growing community.

Demand for housing continues to outstrip supply, and we don’t see this ending soon. We expect immigration will rebound in 2022, which will ensure there is a continued demand for homes and apartments.

Continuing supply chain issues in 2022, due mainly to COVID and the new variants, will increase pressure on both materials and labour. Flato, however is well prepared, and we are still closing homes on schedule.

Flato does see an increasing interest rate environment in 2022. However, we don’t think that there will be major increases, and banks are still doing mortgage stress tests at higher rates than what homeowners are able to borrow at.

Shaun Levy
Vice President, Finance and Operations
Flato Developments

LONG-TERM VIEW

I always hesitate in trying to predict the future, but when assessing the outlook for 2022, I think about the different scenarios that could unfold and filter our opportunities through them. There are a few key foundational pieces to keep in mind as we look forward this year. Top of my list is how the central banks will choose to respond to the current inflation threat. Whether they keep the status quo, or interest rates rise quicker than anticipated, I don’t foresee either scenario resulting in a housing market crash, as there likely will not be enough supply to trigger one.

My advice to prospective homebuyers is, if you have the means to purchase or invest in real estate, do it. In the current market, I recommend buyers take advantage of the low interest rates while they can. However, the decision to buy or invest in real estate should be a long-term one – never buy to make money in the short-term. I suggest always handling this decision with care, and being prepared if there were to be potential spikes in rates or unexpected changes in the economy.

Lee Piccoli
CEO & Founder
Fusion Homes

RESEARCH AND PREPARATION

One thing we’ve learned during the past two years is to be flexible, not only with many aspects of life, but including major purchases.

With the introduction of hybrid work programs for many, and a shift of life priorities, some find themselves looking for a new home to suit lifestyle changes with a re-prioritization of amenities within and around the home.

With extremely low new lowrise home inventory available, it’s become harder to realize the dream of new home ownership when so few units are available and demand remains high. With a continued shortage of new home inventory expected through 2022, buyers who are flexible with their home buying choices may experience a more favourable outcome. To make sure you are well positioned to purchase, be prepared. Know what you want in a new home, and more importantly what you’re willing to compromise on. Speak with your lender to confirm what you can afford prior to researching online, visiting sales offices or booking showings.

Albeit mortgage rates are anticipated to rise next year, rates remain exceptionally low, and there will continue to be purchase opportunities available. With a well-researched plan, and some flexibility built in, when you find the right home, being prepared will allow you to act quickly and with confidence.

Stephanie Lane
Director, Sales & Marketing
Geranium

ONGOING APPETITE

We have a very optimistic outlook for 2022, despite the ongoing and ever-changing measures related to COVID.

Our community development and homebuilding focus remains in our own backyard – the Simcoe and Grey County regions. These areas continue to defy market expectations, as people from the GTA find the prospect of comparably more affordable real estate coupled with a more relaxed and enriched lifestyle.

The imbalance of housing supply and the ongoing appetite for homeownership will likely continue to push home prices higher. Although indicators suggest mortgage interest rates will rise, other economic factors such as a strong job market and wage growth will likely offset any real market cooling.

Mike Parker
Vice-President, Sales & Marketing
Georgian Communities

UNPRECEDENTED DEMAND

I'm confident that the real estate market will remain strong in 2022. Housing supply will remain an issue and will be the leading cause of price increases, alongside a rise in lending rates.

Despite housing shortages and factors such as urban dwellers moving outside the city and interprovincial movement, I remain confident in Toronto. We are a world class city, and there will always be a market for people who wish to remain here as both residents and investors. I would encourage prospective homebuyers to enter the market when you can, especially if you have your heart set on Toronto. I believe this market’s value will continue to rise, and this unprecedented demand will not see relief until we’re able to produce more housing across the city.

Brian Brown
Principal
Lifetime Developments

HOMEBUYER FOCUS

National Homes has always focused on the wants and needs of our customers, above all else. Moving into 2022, listening to homebuyers is more important than ever. Through research and technology, such as National’s unique YOUprint survey, we intend to learn exactly what modern families look for in a new home, and a new community.

For example, to address the affordability issues in the GTA, some of the townhome designs at National’s upcoming Whitehorn Woods community in Mississauga will include the potential for a future rental unit within the home. Not only does this offer an incredible investment opportunity, but also helps to offset mortgage payments.

For many years now, the industry has run into issues with the supply chain and increasing demand. We believe that by implementing new technologies across the GTA, we can increase efficiency to help ease the pressure on the supply chain and streamline the homebuilding process. When it comes to demand, National Homes has embraced gentle density through existing and upcoming townhome communities. In partnership with Brixen Developments, DUO Condos coming to Brampton in early 2022 adds high density to National’s repertoire, while working to meet rising real estate demands.

Deena Pantalone
Managing Partner
National Homes

REMARKABLE ADAPTABILITY

The new home market performed remarkably well in 2019, 2020 and 2021 despite all the challenges we faced, which is a tribute to the adaptability of this industry. This year promises to also be great, for several reasons. The fact that demand exceeds supply in the GTA is still a large factor in sales. With strong immigration expected on an ongoing basis, that scenario will continue for the foreseeable future. Even if interest rates rise, they will still be historically low – a fact that has enabled people to buy who might not otherwise be able.

All our StateView communities were fully reserved in 2021, including The Enclave in Kleinburg, which won two BILD Awards, as well as two marketing awards at the Nationals. In 2022, we will go on sale with Elia Collection near the intersection of Muriel and Gorham Streets in Newmarket. This enclave of just 57 traditional and urban townhomes in three styles will be ideal for families and empty nesters. We have other communities coming as well, and we look forward to another exciting year.

Julian Uccello
President of Sales
StateView Homes