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 Across Canada, suburban real estate prices have been rising the fastest right across the country. Homes 80km away from the city centres have seen the fastest growth. Bank of Canada finds suburban real estate prices outgrew the city.

A new study from the Bank of Canada (BoC) looked at this phenomenon, observing the gap between city centres and the suburbs has been quickly narrowing over the past two years. The central bank ponders if this has been a permanent shift, but this is likely a frequently observed phenomenon called “bubble contagion.” It happens in literally every real estate bubble, with bubble buyers exhibiting similar exuberant behavior at the peak of every real estate cycle.

The growth is so large, living outside of the city center no longer provides the discount it once did. In 2016, Canadian home prices 80km outside a major city were 36% lower than in the city centre. By 2021, that discount shrunk to just 11%.

Real estate prices got a big boost from the central bank stimulus, sparking a speculative frenzy. That frenzy is coming to an end fast, with more than half of major markets off peak. A pullback is expected after rapid price increases for real estate markets. What’s unexpected is the pace of the pullback, possibly one of the fastest declines Canada has ever seen. The country’s worst performing markets are now falling an average of thousands per day.

Oakville, a posh Toronto suburb and Canada’s most expensive market, led the dollar drop. The price of a typical home peaked at $1,645,900 in February 2022, up 65.0% ($648,100) since March 2020. The only thing faster than Oakville real estate’s climb might be its fall. Prices dropped 5.0% ($75,800) in May and are now down 12.4% ($204,100) from the peak reached in February 2022. About 31% of equity value gained since March 2020 has reversed. It’s kind of hard to imagine how fast that drop is. It’s an average decline of more than $2,200 per day since reaching its peak.

Cambridge, a commuter town from Toronto, is now in the middle of the largest correction in the country. A typical home peaked at $993,800 in February 2022, up a whopping 83.8% ($453,100) since March 2020. Prices nearly doubled over a two-year period, a frothy gain for any market in the world.

Since peaking in February 2022, Cambridge has led the way lower for the country. Prices dropped 15.0% ($149,000) since peaking, making it officially a correction. The next three worst performing markets are also in Southern Ontario: London-St. Thomas home prices fell 9.7% ($75,600) since peaking, Mississauga fell 6.5% ($88,300), and Hamilton-Burlington is down 7.6% ($81,600). 

In the Greater Toronto Area (GTA), the country’s largest home market, prices peaked at $1,334,554 in February 2022. This was an increase of 62% from April 2020 when the average price was $821,392. But since the peak this year prices in the GTA have fallen 14%.

Toronto home prices have dropped 7% since the peak which in April 2022 saw the average sale price at $1,243,070, falling to $1,152,175 in June 2022. Prices are still up 30% since April 2020 when the average price for a home in Toronto was $881,424.

Falling interest rates provided fuel for speculators, sending prices soaring. Now that rates are rising, the speculative mindset has broken. However, seeing some losses has shown people that home prices can’t continue to rise at the rate they did.