Average home prices across Canada have eased from their March peak, but a lack of supply and still-high demand is expected to keep prices rising into 2022.

In August, the average selling price of a residential property was $663,500, up 13.3% from August 2020 and 0.5% higher than the previous month, according to the Canadian Real Estate Association (CREA) reported.

While the month-over-month change was small, it marks the first monthly increase in the national price in four months. Since the March peak, average prices have fallen 7.4%.

At the same time, the number of months of inventory fell to 2.2, meaning that’s how long it would take to sell through the current inventory at today’s rate of sales. That’s well below the long-term average of roughly five months.

“This is extremely low,” the report noted, adding it’s “still indicative of a strong seller’s market at the national level and in most local markets.”

Analysts say this trend could continue.

“August's modest dip in the sales-to-new listings ratio notwithstanding, markets have so far been tighter-than-expected in the third quarter,” wrote Rishi Sondhi, an economist with TD Economics. “This suggests home prices could continue to rise in the near-term.”

Prices to Keep Rising in 2022

The tight conditions being experienced in markets across the country are expected to persist through the end of the year and into 2022, CREA said in its updated outlook.

It now forecasts prices to rise by 19.9% on an annual basis to $680,000 in 2021. That’s up slightly from its previous price target of $678,000 for the year.

“With supply at record lows, the national average home price is forecast to rise by 5.6% on an annual basis to around $718,000 in 2022,” CREA added.

Meanwhile, home sales are forecast to come in at 656,300 in 2021, up 19% from 2020. That’s down from the previous forecast of 682,900.

In 2022, “limited supply and higher prices are expected to tap the breaks on activity,” with home sales forecast to fall 12.1% to 577,000 units.

“We expect further moderation in the period ahead as affordability issues weigh more heavily on buyers, the reopening of spending avenues take some budget room away from housing and the latest tightening in the mortgage stress test proves a bigger constraint for some,” wrote Robert Hogue, an economist with RBC Economics.

“But widespread price declines aren’t in the cards,” he added. “Exceptionally tight demand-supply conditions in most markets will continue to provide solid protection against any major price corrections, though we see prices flattening by early-2022.”

Keep in mind that there remains a high degree of uncertainty surrounding these forecasts. Aside from supply concerns, there are other wild cards such as vaccination progress, the pace of the eventual reopening of the economy, international immigration levels and even the results of the federal election.