Reflecting On The Year 2022
Written by: Remington Joseph
Whether you’re immersed into the world of real estate or not, 2022 was an historic year for all of us. As we continue to recover from the effects of the Covid-19 pandemic, we’ve survived a series of economic shifts as global events have unfolded, some good, and some bad. For those of us who have been looking at the year through the lens of a real estate buyer, seller, or investor, we’ve watched as the real estate market has gone through a rollercoaster ride’s worth of ups and downs. As we dive into the new year, we believe it’s important to reflect on some of the highlights of 2022. We hope that this recap gives you some insight into how much the market can shift in any given year, and why it’s best to get involved with the market while you’re able to.
In the first quarter of 2022, we saw new records being set for the average sale price of homes. Year over year, we’ve seen prices skyrocket by over 20%, and last year no different. Despite the higher than average prices, the first quarter also proved to have the highest sale volume, along with the lowest amount of inventory. This led to an unprecedented price pressure, which when added on top of the eighteen months of solid growth, became one of the major contributing factors that triggered the greatest rate adjustment cycle in the Bank of Canada’s history. Devastatingly, February 24th marked the beginning of Russia’s invasion of Ukraine. In addition to the destruction and loss of life caused by this invasion, it also left many without a place to call home. Ultimately, this invasion created the largest refugee crisis in Europe since World War II. In addition, it disrupted global food supplies, and caused gas prices to surge. Our hearts go out to all those who have, and continue to be affected by these events.
By the second quarter of 2022, people were really beginning to feel the pressures that come with inflation. The word could be found in the headlines on nearly any given day as the rate moved up from 5.1% to a new peak of 8.1% In Canada, this rapid increase had a direct effect on the real estate market as the cost of borrowing had changed dramatically. In truth, the Bank of Canada had made an error in keeping rates too low for too long, and this was the result of that error. Transaction volume was quickly falling, and many were voicing their concern.
As the third quarter began, transaction volume had dropped to an all time low. On the brighter side of things, enough time in the market allowed hopeful buyers to grow accustomed to their new reality, allowing them to better understand their purchasing power. At the same time, sellers were forced to come to terms with buyer’s budgets. At this point, as reported by the TRREB, the average sale price had declined from its February peak by approximately 19%, finding a base of $1,080,000 down from over $1,330,000. During all of this, the Bank of Canada continued to raise rates, ending the year at 4.25%.
The market began to settle by the time of the fourth quarter. While we continued to deal with low inventory, an abnormality for a market correction of this magnitude, we were able to adjust with a better understanding of purchasing power within the market. In today’s market, we were able to stabilize with approximately 2.8 months of inventory, along with the record setting low for transaction volume in the last 20 years. This may sound stressful, but it is a necessary step that must be taken in order to re-establish the healthy market fundamentals that we will rely on going forward.
It’s unfortunate that a lot of this news wasn’t more pleasant, but it can serve as a somewhat harsh reminder of how easily the state of our economy can shift. Despite all of these changes, the real estate market continues to adjust, correcting itself to reflect on where we stand. If you find an opportunity, don’t hesitate to act on it. It may not be there waiting for you tomorrow.