As the Ontario housing market suffers from rising mortgage rates and decreased demand, the provincial average home price is falling. The average home price in Ontario was $836,300 in September 2022, showing a reduction of 5.7% year-over-year but a gain of 0.2% month-over-month. This price is 23% less than the peak price of $1,086,490 in February 2022.
The relationship between home values and interest rates is both fundamental and technical in nature. The value of a house is equal to the present value of the net rent it will generate for the balance of its useful life plus the present value of its salvage value at the end of its useful life. The net rent is the rent paid less the tenant’s share of expenses related to the upkeep of the dwelling. Higher interest rates cause a larger discount to be applied to future cash flows, hence lowering the value of each home. Greater Toronto Area (GTA) real estate is the largest and most prestigious in Ontario and Canada. In February 2022, the average price was $1,334,544, 19% less than the average price in August and September. The average house price in the Greater Toronto Area decreases by 4% annually.
In Ontario, the average price of a home sold in February 2022 was $1,086,493. In the last seven months, Ontario home prices have fallen by 23%. The average price of a home sold in Ontario is now $250,000 less than it was in February 2022, when the market peaked. This happens when the Bank of Canada increases interest rates aggressively and mortgage rates in Canada increase. During those seven months, the prime rate in Canada rose from 2.70 percent to 5.45 percent.
As the Ontario real estate market cools, it is normal for the number of transactions in the province’s major cities to drop significantly compared to the same month the previous year. The Toronto real estate market is seeing a 44% annual fall in house sales, while the Ottawa real estate market is experiencing a 33% annual decline. Year-over-year, the number of real estate transactions in Hamilton has decreased by 42%. Mississauga home sales are down 46% from the prior year, while Brampton home sales are down 53%. In September 2022, Brampton topped the list of Ontario’s major urban housing markets for annual price reductions, with a 6% annual fall in average sold prices. The Greater Toronto Area subsequently saw a 4% yearly price drop. The annual decline in Hamilton home prices was 2%, whereas the annual decline in London, Ontario home prices was just 1%. The average sales price in the Mississauga real estate market stays steady from year to year. Only the Ottawa housing market expanded by 1% annually.
This month, Toronto, Mississauga, and Brampton continue to have average sales prices that exceed $1 million, although by a small margin. In September 2022, the average home price in Toronto was $1,062k in the City of Toronto and $1,087k in the Greater Toronto Area, indicating monthly increases of 3% and 1%, respectively. The average selling price in Brampton fell 1% month-over-month, to $1,007k. Mississauga completed the top three with an average September sales price of $1,033k, a 4% decline from August 2022. The Hamilton and Ottawa real estate markets continue to provide Greater Toronto Area residents with more inexpensive home alternatives. In September 2022, the average sold price in Hamilton decreased by 1% month-over-month to $783k, while the average sold price in Ottawa increased by 1.3% to $644k. With an average price of $629k, London, Ontario real estate is fairly affordable.
Looking at year-over-year price increases in the remainder of the province, a number of Ontario residential areas continue to see large annual price changes when assessing average prices. The average house price in Thunder Bay increased by 6.5% annually to $300,000. The yearly cost of housing in Cornwall has increased by 10% to $418,000. Sarnia-Lambton home values increase by 6% to $535,000, but York Region home values decrease by 8.3% to $1,239,500, Timmins home values increase by 9.5% to $250,000, and Orangeville home values increase by 6.5% to $806,500.