Canadian home prices are booming in secondary markets — maybe a little too much. Canadian Real Estate Association (CREA) data shows secondary cities outperformed majors in May. This has led to a much smaller price gap between secondary and primary real estate markets. We crunched the numbers for Toronto and Vancouver, finding the gap is now the smallest in decades. Those historic deals are gone, but how sticky are the new valuations?
Canadian Cities Are Flattening The Curve… of Housing Affordability
Home prices in smaller Canadian cities are rising much faster than prices in big cities. This has led to a flattening of the market — the gap between buying in a small city is closing in on big ones. This is typical behavior observed in a bubble, when amenities play a smaller role in the price paid.
The flattening can lead to a number of issues, but the big ones are labor and lockout. If enough higher incomes from outside of the region arrive to skew home prices, it prices out local labor. *chuckles with Vancouver accent*. This can lead to people fleeing a region for a better wage-shelter ratio than they can find locally.
If home prices in the region rise too much for locals, this can also cause buyer’s gridlock. This is when the step up from a starter home is no longer possible, due to the gap rising so quickly. When this happens, it breaks the property ladder. First-time buyers get locked out of the market, unless they jump the ladder, often with help from mom and dad. In short, it gets sloppy, and increases inequality — even for those that made a whack on that starter home.
About Today’s Data
That said, today we’re going to be looking at the flattening of prices around Toronto and Vancouver. To do this, we’ll take the price of buying a home in a secondary city in Ontario or BC. We’ll then compare it to buying a home in the province’s primary city, to create a ratio. We can then compare it to the past decade or so of data, to determine how this gap historically looks. A ratio that’s too high may indicate prices have outgrown its local offerings.
Dumping Toronto For Smaller Secondary Markets Isn’t The Deal It Was A Few Months Ago
Moving from Toronto to another market in Ontario isn’t going to save you nearly as much as it normally does. The price ratio of buying in a small city to buying in Toronto reached a high in all of the province’s CREA HPI markets.
Home Price Ratio For Ontario Cities To Toronto
The ratio of home prices in Ontario’s secondary real estate markets, compared to prices in Greater Toronto.
Source: CREA; Better Dwelling.
The top three regions closing the gap the fastest are places you probably couldn’t find on a map. The ratio increased fastest in Bancroft, Woodstock-Ingersoll, and Tillsonburg.
Buying a typical home in Bancroft is now 43.32% of the cost of buying in Toronto, up 29.9% from the average. Woodstock-Ingersoll, another cottage-y region, hit 60.2% of Toronto, up 28.7% from the average. The ratio of home prices being almost a third higher than usual is hard to appreciate. Maybe Woodstock is the next Toronto, who knows?
A distant third is Tillsonburg, which hit a ratio of 53.35% in May, about 23.9% higher than the average ratio. These were the three fastest rising ratios, but nearly every market closed the gap, at least a little. The two exceptions were Ottawa and North Bay, which still have larger than usual gaps.
The Ratio of Home Prices In Ontario’s Small Cities To Toronto
The ratio of home prices in Ontario’s secondary real estate markets, as a percent of buying in Toronto.
Source: CREA; Better Dwelling.
BC’s Secondary Real Estate Markets Are Getting Pricey
The gap between home prices in BC’s smaller markets and Greater Vancouver didn’t make as extreme of a movement. The most drastic increase was in Chilliwack, where the ratio hit 59.6% in May, rising 18.2% from the historic average. In Fraser Valley, just outside of Vancouver, the ratio reached 88.6% for the month, up 14.0% by the same measure. Vancouver Island home prices also gained ground, with the ratio rising to 55.4%, up 10.6% from the average.
Home Price Ratio For BC Cities To Vancouver
The ratio of home prices in BC’s secondary real estate markets, compared to prices in Greater Vancouver.
Source: CREA; Better Dwelling.
Only two regions have a ratio lower than the long-term average — Okanagan (56.1%), and Victoria (69.4%). Though both regions are also seeing very large price growth these days, and may beat the average soon.
The Ratio of Home Prices In BC’s Smaller Markets To Vancouver
The ratio of home prices in BC’s secondary real estate markets, as a percent of buying in Vancouver.
Source: CREA; Better Dwelling.
Some economists have argued the gap between small and large cities is going to be sticky. Land economists argue a shrinking gap between primary and secondary markets is a bubble. It’s actually characteristic of a bubble to spread to surrounding regions. Just because locals can afford to pay more, doesn’t mean they should in every case. If that were true, Toronto would be cheaper than cities like Calgary, that have much higher median incomes.
If the gap were to stick for a while, this can create an even bigger issue. As the gap shrinks, so do the incentives to move to a cheaper region. This can pre-maturely kill its growth, leading to long-term economic damage. Expensive real estate usually comes after booming local economic growth, not before.
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So everyone who bought a house outside of Toronto basically got ripped off about 30%, great. What else does the BOC have in store for Canadians. Let me guess. There going to crack down on crypto because they want all the dumb Canadians to buy houses and pay land transfer taxes and pay for everything else that goes with buying a house. They will keep everyone house poor while the smart money goes into crypto.
Already happening. Binance and a few other exchanges withdrew business from Ontario. Same organization that gave the stamp of approval to ponzi schemes in Canada, say it’s too dangerous to have anyone not register for their ponzi-economics.
Crypto is a ponzi/pyramid scheme and nothing but a ponzi. Bitcoin has Langley written all over it and I can’t believe how “smart money” got duped so hard. The vast majority of hodlers will get slaughtered. Gold is the best asset to own.
crypto is a bumpy ride!
No breakdown of Markham or Brampton I see, but I’m guessing those are going to be regions that see a sharp correction when rates normalize. That was the case almost every time, even when Toronto barely moves.
I don’t think there is any kind of correction any time soon.
Can we have a discussion on what the next step will be? Cities like Brampton are no longer rent or mortgage friendly for thousands of single, single parent, middle-low income, underemployed, homeless, or any family acquiring an income of 140,000 or less. Just my estimate but, where will we all go? Add that to car insurance, rising food costs, utilities etc etc.
The subsidized housing wait list is 5 plus years long. That is a joke and a horrifying feeling for any parent with new generations.
The tiredness I feel when I hear politicians speaking in the issue but literally do nothing. Reminder:
Those who pour your coffee, serve and cash out you food supply, clean your buildings etc etc deserve a decent place for their families too !! And not one that takes up half-plus of your monthly income!!!
Is there a reason for not including Brampton? This city doesn’t gets to mention in most of the important data points.
Just curious to know if there is reason or deliberately omitted due to lack of data?
So what’s the narrative being proffered on why this is happening? I mean, Bancroft (2.5 hours from downtown Toronto) is too far from anywhere to be a commuter town, so people fleeing to the suburbs for affordability can’t be the reason.
Asian money laundering isn’t plausible either, nor is intrinsic value. I mean, we all know the actual reason – FOMO, HGTV, and historically low interest rates – but I would like to know what the fairy tale explanation is.
I’m a first-time home buyer earning 105k and I can not afford to buy a house or townhome in any place with 2 hours distance from Toronto GTA. My money does not have value. How about yours?
Not just money, there is no value of you and your family. The housing policy advisor Adam Vaughan was very clear that Canada housing is favorable to foreigners than to the Canadians who pay his salary via taxes.
Not just any landlord. They want it to be given to pension-owned landlords, that can afford to make almost no money, but need to seek shelter due to low interest rates.
They want you to give your money to landlords.
I am in the same situation as you. Property rates increase faster than I can save up for the downpayment
My spouse and I have a combined income of 205k. We have 1 child and we cannot seem to be able to catch up to 20% down-payment. I save half my pay per month after taxes for d/p and put 25% in profit sharing for retirement savings with the company I work for. I guess I don’t want to pay a million bucks for a run down house. I talso think its insane to pay up to 5 or 6 grand per month in carrying costs. We are actively looking to move out of Canada at this point.
Oh my, this is when the smug become bitter.
The plan was to cash in on the windfall in Coquitlam, and buy in Kelowna and have a half a million mad money left over.
The Ponzi scheme is starting to crumble.
I told them many times, they had a lotto ticket with an expiry date.
Well, there are cities that have higher median income than Toronto. Their prices are under valued. If you missed the Toronto housing lottery you still have a chance there.
most of the US cities are like that!!