Real Estate Market Analysis for USA and Canada In 2022
- June 29, 2022
The landscape of the US and Canadian real estate markets is constantly changing and according to the recent trends, we are now witnessing a situation where the market forces and government interventions are now starting to cool the hot markets down. As the U.S. and Canadian economies continue to recover from the government imposed restrictions in response to the COVID-19 pandemic, the low supply for housing inventories continues to persist in the second quarter of 2022 while the demand from prospective homeowners continues to remain high.
The recent transition from major cities to smaller cities and suburbs during the Coronavirus period as a result of work from home programs and rising inflation has continued to shape the current state of affairs of the U.S and Canadian housing markets. A closer overview of the current real estate market indicates that the median home value in the U.S is $320,662 while the median list price stands at $372,967. The annual appreciation rate also rose by 19.3% compared to the market performance for a similar period last year.
In April 2022, the Canadian real estate market recorded a slow decline in sales as a result of the recent government interventions. The average price for a home in the Ontario housing market was $985, 354 in April 2022 which represents a 6% drop from $1,052,920 recorded in March 2022. The MLS Benchmark Price increased by 27% year-over-year to $882,400 in April 2022 which is still down by 0.3% recorded month-over-month which is the first-time we are witnessing such a decline for the last two years.
According to the recent statistics, new areas are emerging as some of the hottest real estate markets in the U.S. Some of these popular neighborhoods that have recorded a high appreciation rate in 2022 include;
a) Miami, Florida
The Miami real estate market and the entire South Florida bounced back to life after the Covid-19 pandemic and it has continued to record high demand due to low mortgage rates. There is high demand for homes in Miami, Florida from locals and foreigners and over 39,934 homes were successfully sold in 2021 which represents an increase of 49.5% of the total home sales of 26,345 that were recorded in 2020. The rapid growth in Miami, Florida can be attributed to great migration which leads to a surge in population and amazing home affordability. The real GDP of Miami, Fl has continued to improve from 5.4% in 2021 and we are now projecting the 2022 real GDP to grow by 2.7%. Median rental prices have also gone up month-over-month by 4.8% for 1 bedroom house to reach $2,170 and 5.1% for 2 bedroom house to reach $2,870.
b) Phoenix, Arizona
Phoenix’s real estate market continues to gain attraction from buyers of all ages. The increasing search for areas with a lower cost of living and warm weather makes Phoenix one of the top preferred markets, especially for retirees. As the demand from buyers continues to increase, the prices for homes have also increased recently with median home prices going for $390,103 with a forecasted one-year appreciation rate of over 20%.
c) Seattle, Washington
Seattle’s real estate market has continued to be one of the hottest real estate markets in the U.S and it’s the home to some of the most popular global brands such as Microsoft, and Starbucks. The high demand for housing is being driven by young working populations and millennials who are looking for job opportunities. Home prices have continued to increase and young homebuyers are now buying homes at an average price of $900,084. Moving forward past 2022, the one-year home price appreciation forecast is expected to increase by over 17.2%.
Overview of the Canadian Housing Market 2022
The Canadian real estate market has also shown a lot of similarity in performance to the U.S housing market. For the last few years, the hot Canadian housing market has been characterized by high demand due to lower interest rates amid an acute shortage of inventories. For instance, the housing market in Ontario recorded an average home price increase of about 50% in 2021.
However, in an effort to cool the hot market down in 2022 and beyond, the Bank of Canada (BOC) has increased the key lending interest rates from 0.5% to 1% which is the biggest adjustment for the last two decades. Although the high-interest rates will likely lower the high homebuyer’s appetite, we are still experiencing the seller’s market in both the U.S and Canadian real estate markets.
Millennials and Canadians coming back to the country are still able to pass the high interest stress-test and they are keeping the demand higher. Even as we approach the second half of the year 2022, there is a high number of interested homebuyers who are still willing to buy homes at higher prices. The seller’s market transition phase is likely to continue in the next 12 months or so until the market gets enough homes for sale to meet the demand.
As the inflation rate continues to rise, the federal government of Canada is also tightening the mortgage lending options by increasing the lending rates for both variable mortgages and lines of credit. The introduction of the two-year ban on foreigners from investing in real estate will help reduce the competition as the available homes will be bought by Canadians citizens and migrants with permanent residency only as opposed for speculative purposes by foreign investors. To address the shortage of newly constructed homes, the Canadian government has eased its immigration policy to make it easier for foreigners with skills to move into the country and offer the much-needed labor force.
Will the US/Canada real estate market likely crash in 2022 or near future?
Many real estate stakeholders have been wondering whether the market is going to crash in the near future. The truth of the matter is, that it’s not going to happen soon since the rising mortgage interest rates are not cooling the market as fast as expected. The high demand for homes is still there, especially from the first-time homebuyers who are the working millennials though the supply for new homes remains a challenge.
The stability of a real estate market is also determined by other key factors that define different seasons in a real estate cycle. Both the U.S and Canadian economies are faced with high inflation rate, employment growth, declining real GDP, a rapid growing population due to influx of immigrants. The impact of these dynamics on the real estate sectors is that we are going to witness longer tenancy occupancy rates and increase in property values going forward.
We expect to see an increase in the construction of new homes but it will take a while before the supply becomes high enough to cause any material drop in home prices. Instead of a market crash, we are likely to witness a slight market pullback in 2022 as a result of careful analysis of many leading indicators – including ease of immigration, rising inflation rates, and high interest rates and much more.
Home affordability will continue to be an issue in the short-term as high home prices and rental increases are going to persist in 2022 until the market starts to stabilize, probably starting from 2023 and beyond. Another factor that is contributing to the low housing supply that we are currently witnessing is the eminent shortage of labor and construction materials.
Supply chains were affected during the COVID-19 pandemic and it will likely take some time before efficiencies are restored. Forecasting into the future of 2022, 2023, and beyond, home appreciation is likely to continue as the real estate will still be a seller’s market until there is enough inventory to balance the market equilibrium.
