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Published January 4, 2022

5 Things to Know About Buying a Home in 2022

Buying a home this year? Here’s what you need to know about prices, interest rates, the mortgage stress test, government incentives and more.

Home prices were high and competition among buyers was fierce in 2021. Unfortunately, experts agree that Canada will see much of the same in 2022.

If you’re hoping to buy a home this year, now is the time to arm yourself with as much information as possible. Knowing what to expect can help you manage your emotions and set you up for success.

Here’s what to look out for and consider when buying a home in 2022.

» MORE: Steps to take before buying a house in Canada

1. Sales may slow down but prices will stay up

According to the Canadian Real Estate Association’s most recent quarterly forecast, 2021 saw a record high of over 668,000 sales. But that frantic pace started to recede in late 2021, and the slight slow down is expected to continue this year.

CREA has predicted that national home sales will fall by 8.6% to around 610,700 units in 2022.

Slower sales can mean two things: that there are fewer buyers on the market, or there are fewer homes available to buy. CREA believes that the elevated home buying activity in 2020 and 2021 was directly related to the impacts of COVID-19, as many people were suddenly allowed to work from home — a trend that’s far from over.

With expectations that demand will continue to outpace supply, CREA predicts that the national average home price will increase by 7.6% to around $739,500 in 2022.

Keep in mind that these are national average predictions. Both sales activity and prices could be lower, or much higher, depending on the province or territory.

» MORE: Find out how much mortgage you can afford

2. Interest rates will rise

The global pandemic forced the Bank of Canada to suppress interest rates to keep Canada’s economy going. When will rates trend upward again? An October 2021 forecast from the Bank of Canada was clear: They expect to start increasing rates as early as the second quarter of 2022.

For prospective home buyers, higher interest rates mean it’s more expensive to borrow money, essentially making homes less affordable, even if prices stay the same.

In anticipation of this rate increase, some hopeful homeowners are getting pre-approved for a mortgage now. Since rates can be locked in for only a few months, doing so may speed up their home search, resulting in increased demand in early 2022 as people try to secure a home before rates go up.

» MORE: How does mortgage interest work?

3. The mortgage stress test won’t get more stressful…yet

The government of Canada introduced a mortgage stress test in 2018, in part to ensure homeowners could continue to afford their mortgage payments, even if interest rates increase.

In December 2021, the Office of the Superintendent of Financial Institutions, or OSFI, confirmed that the stress test — also known as the minimum qualifying rate for uninsured mortgages — would remain unchanged heading into 2022. Currently, you need to be able to qualify for a mortgage at the rate your lender offers you plus an additional 2% or the benchmark rate of 5.25%, whichever is higher.

Let’s say you’re given a mortgage rate of 2.99%. Under the current stress test, you’d need to add 2% to the rate and then determine whether your debt-to-income ratio and down payment qualify at that rate. In this case, it would add up to 4.99%. However, since the threshold of 5.25% is higher, you would estimate your debt service ratios based on that number.

The stress test was introduced to protect the Canadian housing industry. But it impacts potential homeowners as it may force them to set a lower budget or to increase their down payment, just to qualify for a loan.

The OSFI reviews this test at least once a year, so the minimum threshold could increase in the future.

» MORE: How to pass the mortgage stress test

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4. Government incentives remain TBD

During the 2021 federal election, the Liberal government proposed several policies to help make housing more affordable.

The Liberals’ idea was to help families save up to $30,000 when purchasing their first home. How would they do this? First, they’d commit $1 billion in loans and grants to develop rent-to-own projects. Next, they’d introduce a tax-free First Home Savings Account where Canadians under the age of 40 could save or invest up to $40,000 towards their first home, tax-free.

Although there’s already a Shared Equity Mortgage Providers (SEMP) Fund to help Canadians purchase their first home, the Liberals’ also wanted to make the First Time Home Buyer Incentive more flexible by offering deferred mortgage payments. The First-Time Home Buyers Tax Credit would also be doubled.

Finally, they proposed reducing the cost of Canadian Mortgage and Housing Corporation insurance by 25%.

All of these incentives sound great, but it’s important to remember that they were election promises. Because the Liberals only secured a minority government, there’s no guarantee that any of these proposals will come to pass in 2022.

» MORE: What is mortgage insurance?

5. Homeownership will continue to be out of reach for some

Everyone knows that housing in Canada is expensive, but results of Manulife Bank’s Spring and Fall 2021 Debt Surveys underscored how profoundly prices are affecting first-time home buyers:

  • 75% of non-homeowners surveyed want to buy but can’t afford to.
  • 71% of Canadians worry about housing prices in their community.
  • 33% of homeowners surveyed needed help from their parents to purchase their first home.

Simply put, owning a home is getting further out of reach for many potential buyers unless they get some kind of outside assistance.

If home prices continue to increase in certain communities, more people may consider drastic changes, like moving to different parts of the country where housing costs are more reasonable. This may be especially true for people who can now work remotely full-time.

» MORE: How to save for a down payment

The bottom line: Hang in here

If you feel like real estate ownership is slipping out of your reach, you’re not alone. And you’re certainly not a failure just because you continue to rent or because you can’t pick up and move to a new place right now. In fact, some people choose to rent as it comes with significantly fewer responsibilities than home ownership, and they can relocate without the hassle of putting a home on the market.

If you plan to buy in 2022, steel your emotions for high costs and stiff competition. And if it doesn’t work out, don’t think of the delay as defeat, but rather an opportunity to build your credit score, bolster your savings, and pay down your debts while waiting for friendlier market conditions.

About the Author

Barry Choi

Barry Choi is a personal finance and travel expert. His website is one of Canada's most trusted sites when it comes to all things related to money and travel. You can reach him on Twitter: @barrychoi.


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