Home prices will fall farthest in areas outside Toronto: Desjardins

As home prices fall and sales stall, homeowners and prospective buyers alike have been left wondering what the post-pandemic real estate market will look like.

A new report from Desjardins Economic Studies suggests that while the situation will differ from province to province, what goes up must come down. The parts of Canada that saw the biggest increase in home prices during the pandemic will also feel the largest losses.

Nationally, the average price of an existing home rose from roughly $530,000 at the end of 2019 to just over $790,000 during the peak in February 2022 — a 50% increase in two years.

In the months since, prices have fallen fast across Canada. In March, they slid by 2.6% month-over-month, and were down by 3.8% in April. Existing home sales have dropped, too. In March, they declined by 5.9% and were down by a dramatic 12.6% in April.

“While two months of data don’t make a trend, we believe they do suggest that the Canadian housing market has reached an inflection point,” the report reads.

In Ontario, the national trend will play out on a local level.

In the two years before the pandemic, average home prices in Ontario rose by about 13%. However, from December 2019 to February 2022, the average price jumped from $645,000 to $1,040,000 — an increase of over 60%.

During the same time, Toronto saw an increase of nearly 50% — rising from nearly $875,000 to almost $1,300,000 — but areas outside the city saw even bigger price gains of over 70%.

Desjardins predicts that the housing market correction in Ontario will be led by a drop in prices and sales activity in smaller centres outside major urban areas.

Communities within a few hours’ drive of Toronto are likely to see sales activity and prices fall the fastest as borrowing costs rise and commuting becomes more common.

Bancroft is expected to see the biggest decline — at its peak, the town saw home prices rise a staggering 185% above December 2019. Chatham Kent and Windsor-Essex will also see sizable drops over the coming year and a half, as will Tillsonburg and Woodstock-Ingersoll.

Desjardins

Desjardins expects Thunder Bay to experience the smallest decline in home prices. Timmins and Oakville-Milton are included in the bottom five, as are York Region and Greater Toronto, the areas people fled in search of space.

“It’s difficult to envision the housing markets of some smaller communities maintaining their unprecedented pandemic price gains as people return to in-person work on a more regular basis,” the report reads.

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While Desjardins expects that home prices will continue to fall in Ontario, and Canada-wide, they will remain above their pre-pandemic levels through to December 2023.

Most provinces can expect a correction in the range of 10% to 20% by the end of next year — 18% in Ontario — but the report notes that even the areas that experience the biggest changes in valuation won’t lose all the home equity created during the pandemic.

“As such, the anticipated correction should bring more balance to the Canadian housing market,” Desjardins said.