Several housing reports have been released over the last couple of weeks, and they all tell the same story: house prices are soaring.

Records are being broken on a monthly basis, seemingly with no end in sight. Below we explore where prices may be headed and how it may impact home buying decisions.

Here’s a recap of what we learned from the Canadian Real Estate Association (CREA) in its latest release for February:

• Average national house price: $679,000 (+25% year-over-year)
• Average price excl. Greater Toronto and Vancouver: $529,000
• National home sales: +39.2%
• Months of housing inventory: 1.8

According to regional data from the Toronto Regional Real Estate Board, the average selling price in the GTA was up nearly 15% to breach the million-dollar mark for the first time, to a high of $1,045,488.

Many of the country’s other major cities also saw substantial gains, according to CREA.

• Vancouver: $1,084,000 (+6.8%)
• Ottawa: $578,800 (+24.9%)
• Montreal: $451,900 (+18.8%)
• Halifax: $450,563 (+36.9%)

Three regional boards in Ontario, all within a couple hundred kms of the GTA, reported price gains of more than 35%: Tillsonburg District (+39.7%), Woodstock-Ingersoll (+36.6%) and the Lakelands District, comprising the cottage-country communities of Parry Sound, Muskoka, Haliburton and Orillia.

Annual House Price Gains Rivalling Incomes

To illustrate the scale of these annual gains, BMO Economics economist Sal Guatieri released a note entitled: “Your House Makes More Than You Do.”

He pointed out that in some communities, house price gains are outpacing household incomes. Benchmark house prices in a number of communities are up over $100,000. In Hamilton-Burlington, the benchmark house price is up $154,000 over the past year.

In comparison, the median household income as of 2018 was $86,970.

What’s driving the surge in prices?

There are several factors behind the run-up in prices.

1. Low interest rates: Despite rising fixed mortgage rates, interest rates are still at historically low levels, which has helped affordability, even at today’s higher price levels.
2. Low supply: CREA reported a record-low 1.8-month inventory of housing supply. That’s how long it would take to liquidate the current housing supply at current sales levels. In 40 markets across Ontario, there is now less than one month of inventory. High demand and low supply equals upward pressure on prices.
3. FOMO: The “fear of missing out” is driving countless buyers to bid on properties for fear of missing out on the sale and being forced to search for another property at an even higher price. This is a self-perpetuating phenomenon, as aggressive bids continue to drive up prices more quickly.

Here’s how CREA’s chief economist Shaun Cathcart described it: “Part of it is demand that is being pulled forward from the future, either in search of a home base to ride out the pandemic or to lock down a purchase amid rapidly rising prices while securing a record-low mortgage rate.”

Where do prices go from here?

While prices are expected to keep marching forward this year, 2022 should finally see a return to more moderate appreciation.

In CREA’s updated forecast released this week, the association said it expects prices to post a 16.5% gain over the course of 2021 to $665,000. In 2022, it sees price gains falling to a more moderate pace of just 2%, to $679,341.

Other market-watchers, like Ksenia Bushmeneva of TD Economics, agree.

“Historically tight supply of houses on the market will continue to push prices higher in the near-term,” Bushmeneva wrote. “However, home price growth is expected to moderate in the second half of this year, as prospective sellers become more comfortable listing amid accelerating vaccination pace and buyers shift their attention to more affordable options.”