Canadians have watched a historic housing correction unfold over the past year, but much of the attention has been focused on the major cities, especially Toronto and Vancouver, the country’s most expensive markets.
Yet a closer look reveals that it is smaller communities that are feeling the worst sting of Canada’s housing boom and bust, according to a new report by Desjardins economists Randall Bartlett and Marc Desormeaux.
“Many smaller centres saw the most eye-popping price gains during the pandemic and are now experiencing the most significant home value declines as the housing correction proceeds,” said the economists.
The pandemic fuelled a red-hot housing boom that swelled prices in some centres by more than 50 per cent. But that bubble deflated quickly after the Bank of Canada began rapidly hiking rates in March 2022 to tame inflation.
All provincial housing markets have declined but Ontario and British Columbia, the provinces whose economies are most exposed to real estate, have seen the biggest drops, says Desjardins. Of the two, Ontario has experienced the largest correction so far.
During the pandemic, the necessity of working and educating children from home fuelled a desire for more living space, causing many residents to leave the big cities in search of greener and cheaper pastures. The “unprecedented” demand drove up home prices and some of the biggest increases were seen within a few hundred kilometres of the Greater Toronto Area, they said.
“Home prices rose significantly in the GTA, but not nearly as much as they did in smaller Ontario communities or nationally for that matter,” said the economists. “And these places are expected to continue seeing the biggest correction.”