Canada’s Worst Performing Real Estate Markets Are Toronto and Its ‘Burbs: BMO

Canada’s Worst Performing Real Estate Markets Are Toronto and Its ‘Burbs: BMO

Canadian real estate prices are falling, but most of the pain is concentrated in Ontario. That was the focus of a new research letter from BMO Capital Markets. A typical Canadian home, a.k.a. the benchmark, fell again in August, according to CREA. Most markets are seeing home prices fall, but not quite to the degree they’re correcting in Toronto and its surrounding cities.

Canadian Real Estate Prices Are Down Significantly

Canadian real estate prices are falling in almost every major real estate market. The price of a typical home fell to ​​$760,400 in August, down 2.80% ($21,900) and is down 12.4% ($107,900) since peaking in March 2022. However, Southern Ontario is where the hardest hit markets have materialized. 

“Home prices are correcting across the country, but the speed and depth varies,” wrote Robert Kavcic, a senior economist at BMO. 

Home Prices In Toronto and The Surrounding Region Are Falling The Fastest

The prominent analyst added, “Taken from the February peak in the national benchmark price, the accompanying chart shows how some select markets have performed.”  

“It’s abundantly clear where the worst spots are— suburbs and exurbs of Toronto, where prices are now officially off nearly 20% in some areas. These markets were also the first to break (speculative psychology was arguably the worst in these areas).” 

Exurbs are distant suburbs of a major city, but still driven by that city’s economy. A study from the Bank of Canada (BoC) earlier this year showed Toronto’s exurbs surged much faster than they did in the city. This results in a flattening of prices, where the premium for living further from busy areas shrinks. 

Shrinking premiums for living in the center are attributed to public health measures. However, studies show this is typical of a real estate bubble. Buyers tend to exhaust whatever credit they can, ignoring any premium (or discount) for the surrounding amenities. It shouldn’t be surprising to see these regions correct the fastest, since they have the most to correct. 

Regions That Saw Moderate Home Price Gains Are Seeing Slower Price Drops

Markets with less stretched valuations are predictably not seeing the same kind of correction. “Montreal and Ottawa are correcting in a moderate and orderly fashion,” he said. 

Greater Vancouver home prices have only recently begun to decline more rapidly. BC in general is seeing declines, but not to the same degree as Ontario.  

As for the more quiet parts of Canada, they didn’t see nearly as big of an increase. The Prairies and Atlantic Canada got a late start on climbing. As a result, prices didn’t surge nearly as high, leaving buyers less sensitive to rate hikes. 

“Keep in mind that a market like Calgary had already struggled for a number of years before COVID, so prices there never really got stretched,” said Kavic. 

A mild August for inventory helped to firm the market, but that might be changing soon. September saw significant rate hikes that will shrink budgets further. With further hikes still expected, most banks (including BMO), have forecast home price risk further to the downside