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MLS sales to slow slightly in 2022

 7 January 2022     HGO Staff 

OTTAWA – In what is sure to be seen as good news for furniture, mattress and appliance retailers, home sales in 2022 via the Multiple Listing Service (MLS) operated by the Canadian Real Estate Association (CREA) are expected to moderate slightly over 2021 while remaining at record high levels.

In its latest sales forecast, the realtors’ group noted home sales in 2021 were not as volatile as they were in 2020 but were nonetheless very unstable – similar to what was seen during the financial crisis of 2008 and 2009 – but at a much higher level.

This volatility – which ranged from a seasonally-adjusted annualized high of 807,250 sales in March 2021 to a low of 585,250 sales in August 2021 – then back up to around 650,000 in December, was not the result of lockdowns or any major fluctuations in demand.

CREA instead attributed the volatility to record-lows in supply at the end of every month over the course of 2021. “It would seem the ups and downs of sales in 2021 had more to do with where and how many properties came up for sale. When they did, the demand was there to scoop them up,” the association said, noting the number of months of inventory has only dipped below two months four times in history – in February and March of 2021, and then again in October and November. “So, it is not surprising that prices nationally rose by more than 20% in 2021 compared to 2020.”

Chart courtesy of the Canadian Real Estate Association.While CREA doesn’t expect price growth as extreme in 2022, many of the conditions that supported it right up until the end of 2021 will still be there on as the new year begins.

A few other factors will also play important roles in Canadian housing markets this year.

Many of this year’s new listings will show up as existing owners continue to move around in record numbers in response to the changes to our lives since the emergence of the COVID-19 pandemic. “Demand should be further turbocharged by, and buyers will face increased competition from, the return of very strong or perhaps even all-time record levels of international immigration, depending on the evolution of the pandemic,” CREA’s forecast said.

Growth will be offset to a degree by higher interest rates. While the Bank of Canada is expected to start increasing them as early as April, mortgage rates have already started to move higher over the past few months.

CREA points out borrowers must qualify for their mortgage loans at the stress test rate, currently set at 5.25%, which is higher than the typical discounted five-year rate.

The forecast notes the stress test will soon be re-evaluated by the Office of the Superintendent of Financial Institutions which governs not what people can afford, but what they are allowed to borrow. “As such, this re-assessment is a major wildcard,” CREA said, noting rising interest rates have the greatest negative impact on young and first-time buyers.

“And lastly, another wildcard are the promises made around housing in the recent federal election,” CREA said. “Which of these will become policy in 2022 and how will they affect housing markets across Canada? Unfortunately, a major increase in new supply (the most needed but also most long-term of all of these interventions) is unlikely to make a major difference within the space of a year.”

CREA estimates some 668,000 properties will trade hands via the MLS in 2021 – about 21% higher tan in 2020. This, in turn, should generate some $4.3 billion in furniture, mattress and appliance sales over the next three years if traditional patterns in consumer behaviour hold.

The national average home price is projected to rise by 21.2% to $687,500 in 2021. “This historically large increase reflects the unprecedented imbalance of housing supply and demand, with the number of months of inventory nationally remaining close to two throughout 2021,” the association said, adding, the long-term average for this measure is more than five months.

Sales are forecast to remain historically strong in 2022 while at the same time trending slowly back in the direction of more typical levels. “Limited supply, higher prices and higher interest rates are expected to tap the brakes on activity in 2022 compared to 2021; although, increased churn in resale markets resulting from the COVID-19-related shake-up is expected to continue to boost activity above what was normal before the pandemic,” CREA said.

National home sales are forecast to fall by 8.6% to around 610,700 units in 2022 – still the second-best year on record. This easing trend is expected to play out across most of the country with buyers facing both supply and affordability constraints, while at the same time, the urgency to purchase a home base to ride out the pandemic continues to fade.

The national average home price is forecast to rise by a further 7.6% on an annual basis to around $739,500 in 2022; although, for context, it should be noted that as of November 2021, the national average price was almost $721,000, making this a somewhat conservative forecast given what the handoff from 2021 to 2022 is looking like.

Stearns & Foster
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