The ripple effect: how the GTA housing market affects the surrounding areas

The ripple effect: how the GTA housing market affects the surrounding areas

The ripple effect: how the GTA housing market affects the surrounding areas If there’s one prediction for 2017 that people saw coming, it’s that Toronto has replaced Vancouver as the hottest housing market in Canada.
 
When talking about housing markets that are performing very well, we often overlook the surrounding areas, and the impact that a large housing market has on their individual markets. For the Central Metropolitan Areas (CMAs) around the Greater Toronto Area (GTA), Toronto’s housing market has been a boon to theirs as well – much to the chagrin of home buyers looking for a place to buy with close proximity to the big city that has home prices just out of their reach.
 
“Our evidence indicates that increasing single-family home prices in the GTA are motivating buyers to purchase more affordable homes in nearby centres like Hamilton, Barrie and Guelph,” Jean Sébastien Michel, principal of market analysis, says in the report. “In turn, this purchasing behaviour is driving up house prices in these markets.”
 
If you’ve been house hunting in the past few years in the GTA, then that statement is obvious. People who are priced out of a housing market that’s steadily risen for the past 20 years have had to go further and further afield to find a home that they can afford. Ontario as a whole has benefitted from favourable economic conditions over the past few years, in addition to healthy population growth. That, coupled with historically low mortgage rates, has increased housing demand and driven up prices.
 
“Except for the clear but short decline in many centres in 2008, house prices have steadily increased in most Ontario CMAs over the past 20 years, with even higher growth rates in the last five years,” the report reads.  “However more recently, moderate or elevated evidence of overvaluation was detected in Hamilton and the GTA by CMHC’s Housing Market Assessment framework, indicating that some of the price appreciation was not driven by fundamental factors.”
 
CMHC found that the rising single-family home prices in the GTA have been motivating buyers to purchase more affordable homes in nearby CMAs because since the Great Recession, stronger house price growth relationships with the GTA have been occurring farther out geographically, with larger effects in Barrie and St. Catharines than in Hamilton, Guelph or Kitchener. Low-rise home prices are driving these correlations, particularly single-family home prices, which include single and semi-detached units. In other words, buyers are choosing to purchase a property in a nearby area that has all of the features that they want rather than adjusting their expectations and compromising to buy a smaller place in the GTA. Sudbury and Ottawa prices appear to be affected by GTA apartment prices, although the report indicates that that could be the case because these two CMAs are relatively affordable while still offering high-wage, desirable employment opportunities.
 
So how much do home prices in the GTA affect nearby CMAs in particular?
 
“A one per cent house price shock in the GTA leads to a 1.4 per cent price change in Hamilton within one year,” the report reads. “For example, if GTA house prices rise unexpectedly by 10 per cent in a particular quarter, then Hamilton house prices could rise by 14 per cent in response within one year. Conversely, an unexpected 10 per cent contraction in GTA prices could lead Hamilton prices to decline by 14 percent within one year. After three years, the total impact of a one per cent house price shock in the GTA on Hamilton prices is 2.0 per cent.”
 
Over the past decade, Hamilton is the only CMA whose house price increases have kept up with those of the GTA, and both have remained pretty constant. But other CMAs have not fared so well, and the gaps between those areas and that of the GTA have been growing.
 
In particular, historical house price spillovers from the GTA were prevalent in Hamilton, Barrie, and Guelph. But recent house price spillovers appear to have been occurring a bit farther out, especially in St. Catharines-Niagara, driven by GTA low-rise home prices.

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