Due to increasing home prices in the Greater Toronto Area (GTA), prices in surrounding urban centres, especially those within commuting distance, are also climbing, according to the latest Housing Market Insight from Canada Mortgage and Housing Corporation (CMHC).
Although most housing markets in Ontario have seen significant home price increases over the past two decades due to favourable economic conditions, more recently, CMHC detected moderate or elevated evidence of overvaluation in Hamilton and the GTA, suggesting home price increases in those regions are partly driven by other factors.
According to the report, home prices in the GTA have increased disproportionately compared to other Ontario CMAs (Census Metropolitan Areas). These prices are motivating buyers to purchase more affordable homes in nearby urban centres, causing prices to rise in those regions. Historically, house price spillovers from the GTA were seen in Hamilton, Barrie and Guelph.
“Our evidence supports that increasing single-family home prices in the GTA are persuading buyers to make purchases in nearby communities like Hamilton, Barrie and Guelph, where home prices are more affordable than within the city,” said Jean-Sébastien Michel, principal at CMHC’s Market Analysis Centre, in a press release. “In turn, this is driving up house prices in these neighbouring markets.”
The report finds that recently, home price spillovers have begun to occur farther away from the GTA, especially in St. Catharines-Niagara, driven by the price of low-rise homes in the GTA.
In order to further explain the spillover effect, CMHC’s report also considers the potential impact that a positive and negative shock to GTA home prices may have on nearby regions. While they are not predictions, these scenarios demonstrate that a rise or fall in GTA home prices in one quarter could leave to similar effects in nearby Hamilton within a year. The report states that in both cases, the impact would moderate over time and be less pronounced in other areas nearby.