As trips to the gas station continue to inflict pain on the wallets of Ontario residents, the unwelcome rise in fuel prices is pushing more and more homeowners to reevaluate their entire living situation.
The COVID-19 pandemic brought with it an endless slew of consequences, two of which were an uptick in city dwellers moving to more suburban, car-reliant areas, and plummeting fuel prices. In fact, in March 2020, fuel prices in Toronto hit a 15-year low with some retailers selling gas for less than 70 cents per litre. Although costs did slowly increase throughout 2021, drivers continued to welcome relatively low prices for many months afterwards.
But 2022 has told a different story entirely. Fuel prices are skyrocketing, with gas in Ontario surpassing $1.86 per litre in several markets, including many in the GTA. An already limited fuel supply has been exacerbated by economic sanctions against Russia in response to the country's invasion of Ukraine, banning the import of Russian oil and gas into Canada.
As to be expected, the added financial strain is changing Ontarian's habits. In a recent survey conducted by BNN Bloomberg and RATESDOTCA, a staggering 54% of Canadians reported that they were already driving less because of how high gas prices have risen. In Ontario, that number rose ever so slightly to 55%.
But the issue doesn't just stop at the pump. The effects of soaring fuel prices are felt far beyond the gas station, altering everything from what groceries people can afford to buy to, now, where they're choosing to live.
The Suburbs Aren't So Hot Anymore
Soaring prices have weighed heavily on buyers' minds -- so much so that realtors are already noticing a shift in purchasing trends. The once sought-after suburbs with their larger properties and comparatively affordable prices are beginning to lose their appeal.
"Now buyers are looking at more than just the cost of the house," said Brampton-based realtor Wessam Shehadeh. "They're looking at the cost of living and that has driven down the housing market in more rural communities further from Toronto, further from GTA. We're just simply not seeing those homes sell as quickly as things closer to GTA."
Shehadeh says that in the last 30 days in particular, buyers have become more reluctant to make big purchases amidst the changing economy.
"People are now looking at well, is it worth it?" Shehadeh said. "Is it worth going that far? How much will it cost me to go?"
Those who live in these further out, suburban areas are exponentially more reliant on cars than their city-dwelling counterparts. The rising price of fuel not only affects what drivers are paying at the pump but what they're paying for goods, services, and, most importantly, groceries as virtually all industries are affected by increased transportation costs. Compounded by the fact that many workers are beginning to return to an in-office setting, even for just a few days a week, these homeowners are seeing this as a time to reconsider their real estate options, real estate broker Jared Karabegovic says.
"What we're seeing now is the outskirts are softening because people aren't looking at the gas price per se, but they're reevaluating their situation," Karabegovic said. "If they're going to have to go back to work, they're going to have a 45-minute to one-hour commute, and they're also paying for this car and now they've got another $200 a month just on gas. And what happens is, every time you have a major shift in any factor, any decision factor for real estate, people reevaluate what they're doing. So with the gas price jumping up, they're going to reevaluate 'Should I be commuting at all?'"
Both Shehadeh and Karabegovic have observed in recent weeks that properties further out from the city in areas like Durham or Halton that were once receiving several, if not dozens, of offers are now pulling in just one or two come offer night.
"If even that," Shehadeh said. "A lot of those listings are being suspended and then re-listed. They've gone back to being niche areas."
Buyers Are Already on the Move
As interest begins to drop in more suburban areas, homebuyers are favoring properties closer to downtown Toronto or Mississauga where they'll be closer to work and won't be so reliant on pricey vehicles for transportation.
"A year ago, I had clients who were looking at purchasing in London, Ontario, even though they worked in Mississauga, and that was fine for them because it all made sense," Shehadeh said. "Interest rates were low, houses were cheaper there, but now with everything increasing, they want to be as close as possible because that just simply won't make sense. With the amount of money they're going to be spending on fuel, they might as well just put it towards their home and and not have to deal with two hours transportation."
Karabegovic, who largely focuses on the King West neighbourhood of downtown Toronto -- close to hundreds of offices and dozens of public transit options -- is seeing sustained interest in condos in the area.
"What I'm seeing downtown is offer nights with multiple offers on the small little one-bedroom condos, and the price point's getting pushed up and up and up," Karabegovic said.
And although the financial savings that could be accrued from moving downtown and not having to pay for gas are notable, they're, once again, not the only factor that's pushing buyers to ditch their cars in favour of a more commutable neighbourhood. Once they do the math on what not having having monthly payments for loans, insurance, parking, or general maintenance could mean in terms of additional purchasing power, the benefits are hard to ignore.
"If I sell my car and I moved downtown, I can have another $1,000 a month in my pocket -- that's $300,000 worth of real estate," Karabegovic said. "If we have two cars, that's $2,000 or $2,400 a month, depending on what car you have. All of a sudden, you can buy almost $1M-worth of real estate with that."
Gas Price Aren't Going Down Any Time Soon
Unfortunately for drivers hanging onto their vehicles -- whether by choice or out of necessity -- the steady rise that fuel prices have been on isn't expected to backslide any time soon. In fact, prices are slated to get even more expensive.
"It's not going to get any better," said Dan McTeague, president of Canadians for Affordable Energy. "There's no relief in sight... unless something dramatic should happen and it would require three things: the federal government backs off on its tax increases, Russia ends its war with Ukraine, apologizes and the sanctions are removed, and then the final one, of course, is that suddenly someone waves a magic wand and three new pipelines in Canada appear and we can send 3 million barrels of oil to the rest of the world that desperately needs it."
Typically, demand for gasoline is lowest in the winter, meaning what drivers are experiencing with fuel right now is nowhere close to fuel under its highest demand. But as the weather changes and summer rolls around, the demand will become "a whole different kettle of fish," McTeague says. By his calculations, Canadians can expect to pay $2 per litre at the pumps this summer.
"People had to best get used to it, especially those, unfortunately, who have to commute long distances," McTeague said. "And it doesn't really matter if you're doing it with personal vehicles, carpooling, taking the bus -- all of the prices of those things are going to go through the roof."
This means that the tickle-down inflation of the price of goods and services that has come alongside rising gas prices will also continue affecting everything from grocery prices to the cost of building homes.
"The driving is one side of it -- that's the one that we notice," McTeague said. "The one that hurts us even more is diesel. It's the elephant in the room. Diesel this time last year wholesale was 65 to 70 cents a liter. Right now, it's 144 -- more than double."
Is a Drop in Home Prices Coming?
With this shift away from further out suburban areas and even more gas price increases on the horizon, it begs the question of whether a noticeable drop in real estate prices can be expected in these regions. According to Karabegovic, it's entirely possible.
"What we're going to see is this kind of slow boil," he said. "The top of the market where things are hitting like $2M for a house in Ajax that used to be maybe $1.2M 18 to 24 months ago, those prices are going to come back down to Earth a little bit. People are going to reevaluate, so it's really only going to be people that can still work from home and don't have to come back in more than once a week that will stay out in those areas."
Shehadeh agreed that a drop seems likely. But with the unpredictably of the real estate market being what it is, nothing is guaranteed.
"All signs are pointing to a possible drop in the market," Shehadeh said. "How much or when? We don't know. Even economists in one article are going to say we're going to have a 30% drop and the next article, they're saying we're going to have an 11% increase. So nobody really knows."