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What Could Impact Toronto Real Estate In 2022?

There are a few things I'm watching closely that could have the biggest impact on real estate in 2022.

Happy New Year! How far into the year is it still appropriate to wish people a Happy New Year? Jan 15th? Feb 1st? If we roll into March and I see you for the first time in person this year, feel free to interrupt me if I start saying those words. I was fast asleep by 11:30pm on New Year's Eve because after an absolutely crazy year, I felt I could use those extra 30 mins of sleep! 2021 was probably the most intense year of real estate most people (buyers, sellers, and agents) have ever been through. In terms of prices, inventory (or lack thereof), demand, and insanely fierce competition on seemingly every property, the pace of activity never really let up all year. It was a banner year for a lot of agents (myself included) but there were a lot of buyers and agents who came away empty handed after several attempts to purchase something in 2021 and I can tell you from experience, it gets exhausting. Both mentally and physically. So I think the holiday break was a welcome reprieve giving everyone the opportunity to take their minds off real estate for a bit and just do nothing. And that's exactly what I did. And it was fantastic. But now I'm itching to get back at it.

There are a couple hot button topics that are top of mind for me in 2022 that I'll be watching closely. I think these have the potential to impact not only real estate in Toronto, but real estate all over the country. Here we go:

1 - Interest rates: I think it's a foregone conclusion that interest rates will be rising in 2022. While the Bank of Canada only has control over short-term rates (the overnight rate), which directly affect variable rate mortgages, those decisions invariably affect the bond market, which then affect fixed mortgage rates as well. At this point, it's not a matter of if, but when, interest rates will rise and how fast. Predictions are all over the place, from two rate hikes this year to five. To me, the real question is will these increases have a material impact on real estate prices. On paper it should. Higher rates means more expensive borrowing costs, which should translate into people borrowing less money, and ultimately spending less on a house/condo. That's kind of the point of raising rates - to temper demand. But history has shown us that slow and steady increases in interest rates don't always blunt demand for housing as much as it should on paper. Buyers may just put larger down payments to offset the effect of higher monthly payments, or they may look at slightly less expensive properties shifting demand down the price ladder, or they may travel further outside of their preferred locations. Or they may just shrug it off and say "borrowing money is still cheap. I'm still going to buy the house I want, and I can still afford it." Only time will tell. But I don't think we'll have to wait too long to find out.

2 - The stress test: I personally think that the stress test has the biggest impact on buyers' ability to afford real estate. As a quick refresher, all buyers in Canada are qualified for a mortgage not based on their actual mortgage rate, but rather on the "minimum qualifying rate" set by the Office of the Superintendent of Financial Institutions (OSFI) and the Department of Finance. That qualifying rate right now is your actual mortgage rate plus 2%, or 5.25%, whichever is higher. So even if your bank is offering you a 5 year fixed rate mortgage at 2.29%, you still have to prove you can afford your payments if your mortgage was 5.25%. Even if you put 20% down or more. Sounds silly right? Yeah, sounds silly to me too. Back in August 2020, this qualifying rate was dropped from 4.94% to 4.79% as banks dropped their mortgage rates as the pandemic continued. But the rate was increased to 5.25% on June 1st, 2021 in response to the unexpected sheer demand for housing and mortgages. And little did many people realize but in December 2021, OSFI stated that they were going to revisit the stress test again "imminently". It didn't get much media coverage but I for one was worried. If the qualifying rate increased again, it will make it harder for buyers to qualify for as much money as they are currently qualified for, which can sometimes push those buyers completely out of the market that they have so desperately been trying to get into. But fortunately, nothing changed. The qualifying rate remains 5.25% (for now). But if this number changes in 2022, and it could, I think this will have the biggest impact on buyers and how they approach their buying decisions in the coming year.

3 - Inventory: Regardless of interest rates, regardless of the stress test, and regardless of how much money buyers have or can afford to spend, if there's nothing to buy, that pent-up demand will push real estate prices up. Supply and demand will always be the biggest driver for real estate, period. And right now, and for the past 12 months, supply has been minimal while demand has been absolutely through the roof. That combination is a recipe for higher prices. I can personally tell you that I have buyers who were not able to find a place to buy in 2021. Are those buyers just going to disappear? Nope. They complain to me on a weekly basis about how "there's nothing to buy". And while there isn't literally nothing to buy, there is a severe shortage of good inventory out there. Which means when that inventory does come up, buyers flock in droves. This phenomenon is acutely visible in the freehold market, basically anywhere within driving distance of Toronto. Have you tried to buy a house in Whitby or Oshawa lately? Or Hamilton? Wow. But condo inventory in Toronto has also been depleted quite drastically over the past 4-6 weeks, all while active buyers are still out there looking for "good" product. Even mediocre product will probably do just fine right now. So unless we see a significant uptick in inventory for both houses and condos in the coming weeks, we'll be in for a very busy start to 2022. And just to be clear, busy always means higher prices.

4 - Return to the office: I actually added this item after I had already published this post originally because I've basically given up on trying to predict when people will actually start being asked to come back to the office. I can't imagine we won't see some sort of push to get at least some people back in the office at least some of the time in 2022. But I also said that about 2021 and while it did happen for a brief moment over the summer and fall, those plans were quickly reversed as things got worse into the winter months. But what we did see in 2021 was a massive increase in renter demand around mid-year with workers, students, and new immigrants all rushed back into the rental market at once as restrictions were lifted and downtown (and office) life started to feel a little more normal. Rents jumped up massively in the summer months as compared to early in the year as people flocked back downtown. If this is any indication of what might happen again in 2022 when/if offices start reopening again, I think it's safe to say that we'll see another big jump in rental demand and rent prices, specifically in the core (ie, condos). When that reopening will actually happen in earnest though is really anybody's guess.

Well, I think that does it. There are always more micro-markets that I watch on a daily basis (specific buildings and neighbourhoods) to see where buyers are focusing their attention at any given moment but I think the three topics above are the most important market-level factors that will impact real estate prices in Toronto and beyond over the next 12 months.

Are you ready? Let's do this.

Have you checked out my previous blog posts?

If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page, follow me on Instagram and check back regularly!


Your Toronto condo lover,

Adil Dharssi

Sales Representative

iPro Realty Ltd, Brokerage

Direct: 647-223-1679 (call/text)



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