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A Housing Correction?


The Greater Toronto Area’s housing market is in the beginning stage of a price correction — one that, it could be argued, is long overdue — but the recent drop in home values could be more dramatic in some areas than others.

If we look at the pre-pandemic activity up until now, those outer 905 markets saw 10 years of price growth in two years. What had been happening was unsustainable, and we’re all well aware of that, so a 20-30% crash from this past February’s peak is totally

possible. The markets beyond the 905, like Simcoe County, Guelph, and Kitchener, could see more of a drop than Toronto and most of the 905. They increased at such a fast rate, with some of them doubling from $500,000 to $1M in two years, and that

was based on extremely cheap money and buyers leaving Toronto for those markets, which pushed the prices up.

Runaway housing prices in the 905 and markets beyond were driven by a single fundamental, demand, essentially creating bubble conditions. But even if home prices in, Milton or Guelph don’t rebound quickly, locals who bought homes during the market’s peak will eventually regain their losses, and then some, through equity.

Growth in the 905 has outpaced the 416 for the last couple of years, so there was definitely some heat going on out there. Markets like Durham Region, which were thought to be invincible, have dropped all of a sudden, and that’s significant. Historically the 416 has outperformed the 905, and when the 905 outperforms the 416, you can naturally expect it to swing back the other way.

It’s definitely a short-term correction. The reason household formation in Canada is so strong is you have 400,000 plus new Canadians each year and you still have the largest organic population group in Canadian history. The millennials are only halfway through their housing journey, and many, many more will end up buying homes. A lot of them are too young still. Those two groups alone will create tremendous demand for shelter, and shelter is not something you can put off for very long.

Although the central bank is pursuing an aggressive rate hiking campaign in which its Overnight Lending Rate has risen by 125 basis points since March 2, it’s still a quarterpoint below where it was before the COVID-19 pandemic. And while housing prices are

elevated for the time being, a price correction could well be underway. ‘Correction’ is a much gentler word than ‘crash,’ and with good reason, because sanity is returning to the housing market — though it remains to be seen just how much, and for how long.

Remember, 2021 was a record breaking year for the GTA housing market.