The housing market cooldown prompted by rising interest rates is being felt more acutely in the suburbs of Toronto, where sales and selling prices are trending downward into the summer at a fast pace.
After Torontonians flocked to the suburbs, experts say the pandemic-fueled balloon outside the downtown core is starting to deflate as the cost of borrowing rises and offices reopen their doors.
Home prices were up 15 per cent year over year in April across all markets, according to the Toronto Regional Real Estate Board (TRREB) on Wednesday. Selling prices for detached houses were up 17.5 per cent, at an average of $1.26 million in the suburbs, compared to $1.63 million in the city of Toronto, with prices rising faster in the suburbs than in the city core.
Prices in Toronto went up 14.3 per cent year over year, while prices in the rest of the GTA went up 15.4 per cent. Condos appreciated faster in price in the suburbs compared to downtown units.
However, John Pasalis, president of real estate brokerage Realosophy, said though prices may be up year over year, they’re slowing down month over month — and one only has to look at the last few months to get a better idea of what’s to eat.
For instance, sales have declined rapidly over the past six or so weeks, said Pasalis, which is the opposite of what normally happens in the spring for real estate. Fewer buyers and showings combined with owners under pressure to sell have driven down prices along with sales.
According to the TRREB, the average selling price of a home in the GTA fell 6.4 per cent between March and April, and one per cent between February and March, after almost a year of only upward movement.
Sale volumes are down year-over-year — a whopping 41.2 per cent from last April — and according to TRREB, the decline is even bigger outside of Toronto’s core, especially for detached houses: In the 905 area code, sales were down almost 45 per cent, with detached homes down more than 47 per cent.
This abnormal trend signals the coming effects of rising interest rates, Pasalis said.
“I think as we move into the summer, we’re probably going to feel the effects of higher rates a little bit more,” he said.
The same is happening downtown, but the change is not as steep, said Pasalis, likely because prices weren’t as inflated from the pandemic as they were outside of the city core.
It’s also possible that there’s renewed interest in living downtown, he said. After all, with gas prices skyrocketing and employers beckoning employees back to the office, the benefits of a bigger house in the ‘burbs might be outweighed by an increasingly expensive commute.
Prices in some suburban areas shot up much faster than others, year over year — such as Durham, which saw average selling prices rise almost 38 per cent from April 2021 to April 2022.
Pasalis said any area normally considered more affordable, like Durham had more room for prices to grow. Younger families likely gravitated to those areas, he said, driving the prices up.
“A lot of young buyers who are looking for affordable housing went to Durham, and that really, really pushed home prices up pretty rapidly,” he said.
After seeing “the rise of the 905” during the pandemic, now the market is readjusting, said Simeon Papailias, a broker with Royal LePage who specializes in investment real estate and the co-founder of The Real Estate Center Canada.
“We’re now going to see the 905 stabilizing, finding its jogging,” he said.
The “insane” increases in certain areas of the GTA were not sustainable, he said, so while homeowners and would-be buyers may be looking on with trepidation, by fall the new normal will be apparent.
Sales are down everywhere, I have noted, but especially outside the downtown core: “We’re seeing the rise of downtown again.”
But though many house-hungry millennials have been hoping for prices to cool down, this doesn’t mean buying a home will be less expensive at the moment, Pasalis said. Cooling home prices are being balanced by rising interest rates, which means it’s getting more expensive to take on debt.
“Even though prices have fallen, the fact that interest rates are higher means that households cannot take on as much debt so they actually can’t spend as much.”
Prices aren’t necessarily going to plummet in the suburbs, noted Papailias, but they will slow down significantly as rates continue to rise. Afterall, Canada still has a housing shortage that isn’t going away anytime soon, he said, one exacerbated by supply chain issues and world events.
“The fundamentals have not shifted at all,” he said.
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