Canada Housing Market Predictions For 2022: Top Expert Forecasts

After hockey, Canada’s favourite national pastime has to be making housing market predictions. 

It seems like every month we have different experts weighing in with their own predictions for Canada’s housing market, and it’s hard to keep track of who’s saying what. 

But given that buying a home is usually the biggest financial transaction people will make, knowing where Canada’s housing market is headed is awfully important.

Of course, we don’t know what’s going to happen with the housing market (if we did we’d be retired on a beach somewhere sipping margaritas), but we can compile what the experts are forecasting. And that’s exactly what we’ve done in this piece documenting top expert forecasts for Canada’s housing market in 2022. 

Let’s start with the first question everyone wants to know...

Will Canada’s Housing Market Crash In 2022: What The Experts Say

Some analysts are sounding alarm bells about a bubble in Canada’s housing market, citing record price increases, mounting household debt levels, and looming interest rate hikes. 

Douglas Porter, BMO Chief Economist

BMO’s top economist warned that some aspects of today’s housing market resemble the conditions that prevailed in the 1980s before a crash that sent prices plummeting:

“The Canadian housing market has just seen bigger increases than ever witnessed through any two years of the great housing bubble of the late 1980s. Just as a reminder, that episode ultimately saw the overnight rate climb to 14% to quell inflation and bring the market to heel. Prices then went into the wilderness for a decade.”

Porter also questioned the theory that limited supply was the main factor driving rising prices, pointing to smaller communities that have also seen rapid price hikes: 

“Some of the wildest markets in the country remain smaller and medium-sized cities in Ontario. Not to pick on Brantford, but that fine city—previously known mostly as the home of Wayne Gretzky—has seen prices rocket 86% in two short years [...] Do you seriously believe that each and every one of these smaller centers suddenly suffers from a supply shortage, or could it possibly be that a common demand factor is driving the madness across the entire region?”

The Parliamentary Budget Office

A recent report from the Parliamentary Budget Office — a non-partisan public research institution — concluded that housing had become detached from incomes during the COVID-19 pandemic and borrowers had become financially vulnerable in multiple cities. 

The PBO noted that “At the end of 2021, the average house price nationally was $811,700—an increase of 43 per cent from December 2019 and a 97 per cent increase compared to January 2015.” 

This increase has led to households stretching their finances to pay for a house: 

“Just prior to the onset of the pandemic, average house prices in several CMAs considered were well above affordable levels based on household borrowing capacity. This implies that households with average incomes were already stretching their finances to purchase and pay for a home. With further increases in house prices over 2020 and 2021, affordability continued to deteriorate in these CMAs, with the average household stretching its finances even further.”

The implication of this finding is that a sudden change in financial conditions — either through a loss of income or higher borrowing costs — could threaten the finances of households that over-leveraged to get into the housing market.

David Rosenberg

Bay Street vet and economist David Rosenberg, who predicted the housing crash in 2008, said in Spring 2021 that Canada’s housing market was in a bigger bubble than that facing the U.S. prior to the subprime mortgage crisis.

“I’m taking a look at all the metrics I had in my hands when I called the housing bubble in 2005 and 2006 in the United States. I was looking at home price-to-rent ratios, I was looking at home price-to-income ratios, I was looking at the extent to which the household sector was overexposed to residential real estate on their balance sheet,” Rosenberg told BNN. “I’ve got news for you: the numbers in Canada, on all the metrics, are higher now than they were at the peak of the U.S. housing bubble 13 years ago.”

More recently Rosenberg said that rising interest rates could threaten mortgage-holders finances: 

“With speculative buying likely set to stagnate (or fall) as the Bank of Canada embarks on a rate-hike cycle over the coming quarters, the hot Canadian housing market could be in for some trouble (though an important caveat here is that demand could be buoyed by the expected immigration influx as the “re-opening” phase continues).”

Tiff Macklem, Bank of Canada Governor

Bank of Canada Governor Tiff Macklem says that he sees “worrying signs” in Canada’s housing market and that Canadians are stretching and taking on too much debt to buy their home.

Canada Mortgage and Housing Corporation

The CMHC, Canada’s housing agency, said the country’s housing market was showing “signs of overheating” and faced a “moderate” degree of vulnerability. The CMHC says urban centres like Toronto and Ottawa are the most vulnerable to a correction.

David Fleming, Toronto realtor and writer

David Fleming runs a popular real estate blog focused on the Toronto housing market, and he strongly disagrees with the idea that the market is headed towards a crash anytime soon. 

He argues that “supply is low and will remain low. Demand is high and will remain high. And in those two sentences, I give you my reasoning for why the market is where it is, and why it will stay here.  You don’t need a top economist to write a book on this.  You just need to simplify the analysis and look at the very most basic tenets of what makes a market.”

Canadians themselves

According to a Nanos Research poll from February 2022, a record 64% of Canadians believe housing prices in their neighbourhood will go up over the next 6 months. That’s the highest level recorded since the company began surveying this question in 2008. 

The Case For A Canadian Housing Market Crash in 2022

Let’s sum all this up: what’s the case for a Canadian housing market crash in 2022? 

Start with the disconnect between income and home prices. From 2015 to 2021, home prices increased by 97%. In 2015 the median household income in Canada was $60,200. For incomes to have kept pace with housing prices, today’s median household income would have to be $118,594. The most recent data we have (from 2019) peg it at $62,900.

To compensate for this lack of income growth, people are taking on record mortgage debt to fuel all this buying. During the COVID-19 pandemic, Canadians borrowed $193 billion for mortgages. Mortgages now account for 68.7% of total household debt. 

Given that, here’s a story about how this plays out to drive down home prices: lots of debt might be okay now while interest rates are low because debt is cheap. But interest rates will rise soon, and when they do people will struggle to cover the cost of the new debt they have taken on. Investors, who now account for 19% of home buyers, will sell quickly as their debt becomes more expensive and properties less profitable. That will spook the rest of the market. People with large mortgages now will seek to cash out before they’re forced to renew at higher rates, flooding the market with new supply. There won’t be enough new buyers to absorb the demand, sending prices down. 

Couple that with people abandoning remote work in smaller towns after the pandemic and record new housing construction, and you get the makings of a housing market fall.

The Case Against A Canadian Housing Market Crash in 2022

There’s two sides to every story, and we can also make a compelling argument that the housing market is nowhere near a crash. 

Why? Because while interest rates could rise, they aren’t likely to rise enough to threaten people’s ability to service their debts. Banks already apply a “stress test” to ensure people could still pay their mortgage if rates rose to 4.79%. Rates would have to rise significantly to pass this point. 

Beyond that, there’s no indication that enough supply will be built to meet even existing demand, let alone new demand that will be created as immigration increases again post-pandemic. Governments are not building affordable housing anymore, nor are they changing zoning rules to allow for more housing in urban cores. 

In fact, the only policies governments seem comfortable pursuing are those that increase demand, like the First Time Home Buyer Incentive. Recently, a government official said that they would not want to see home prices fall at all.

With interest rates likely to stay low, more demand than supply, and government policies aimed at increasing demand without growing supply, the fundamentals of the housing market suggest not only will there be no crash in 2022, but prices will continue to rise. 

The Bottom Line: Will Canada’s housing market crash in 2022

Like we said, we can’t predict the future. Most experts and analysts seem to agree that the extreme price increases we have seen over the past year are not sustainable, but that doesn’t necessarily mean that prices are going to crash or even decline modestly. Instead, prices could grow more slowly or plateau. 

That said, it’s difficult to imagine a housing market slump that would make prices broadly affordable again. Even a 30% drop in prices would only bring them back to pre-pandemic levels, and things were not exactly cheap in January 2020.

We could also see regional variances based on local economic conditions. If people who left cities at the start of the pandemic return in large numbers, home prices in smaller towns and cottage country could fall while prices in cities rise. Similarly, prices in Toronto could increase further as economic recovery takes hold, while cities like Calgary, which have suffered economically, remain lower.

What we do know for certain is that real estate and an expensive housing market is making up an ever-growing share of Canada's economy, and this may not be healthy. The cost of owning a detached home in Canada now consumes 55% of the average household's income and residential investment makes up 9% of total economic output. That means any downturn in housing threatens the economy as a whole. 

Regardless of what happens with the housing market, Canada would be better off diversifying its economy away from a real estate market that many feel is already overheated.