Despite the fact that detached home values appreciated in the first quarter of 2022, the second quarter saw those same prices soften, reigniting home buying activity in Greater Toronto and Vancouver. Dropping home prices can be attributed to recent hikes to the Bank of Canada's overnight rate.

This is according to the 2022 RE/MAX Hot Pocket Communities Report, released today.

"Buyer sentiment changed virtually overnight as growing geopolitical concerns and spiralling inflation destabilized global markets, leaving the Bank of Canada little option but to raise interest rates," says Christopher Alexander, President of RE/MAX Canada. "Those fast and furious incremental increases placed downward pressure on housing sales and prices, improving affordability on one hand, but eroding it on the other."

Within the Greater Toronto Area (GTA), Durham, York, Halton, Dufferin, and Peel all saw prices depreciate by 10 to 15% between Q1 and Q2. Conversely, 15% of GTA markets saw price appreciation in that same timeframe, including five markets in the Toronto core, three in the west end, and one market in the east end.

"Given that the core has traditionally been more resilient, bolstered by strong demand, a finite supply of homes available for sale, higher household incomes, and greater equity at the top end of the market, the results are not unexpected," says Alexander. "The price softening was clearly more evident in suburban areas and the outer perimeters of the 416, most of which experienced strong upward momentum during the height of the pandemic as buyers sought to leave the city."

In Greater Vancouver, 75% of markets saw downward pressure on prices between Q1 and Q22. This was especially staggering considering that many Vancouver markets reported peak levels in the first quarter. Whistler/Pemberton saw the more significant depreciation of around 16% between the two quarters, followed by Delta - North in the Fraser Valley, which saw around a 13% drop. The rest of the GVA markets saw declines below 10%.

On the flip side, Vancouver West and West Vancouver/Howe Sound saw increases of 2.4% and 8.2% respectively, while Squamish and the Sunshine Coast reported no change between the two quarters.

"While we have seen some easing in prices, the sky is nowhere near falling," says Elton Ash, Executive Vice President of RE/MAX Canada. "In fact, there is relative stability in terms of market conditions, so buyers shouldn't expect big bargains. Sales-to-active listings remain squarely in balanced territory overall and even tight in some areas. In Vancouver, for example, supply was lower this June than last in 50% of markets and sales are down accordingly. This trend will likely keep prices fairly stable moving forward."

Price drops and a sweeping return to traditional in-office work have sparked buying activity in Greater Toronto and Vancouver.

In the GTA, detached home sales saw a 40% uptick between the first and second quarters of the year. The bulk of sales activity was in the 416 area code. The Durham Region was another home buying hot spot due to the particularly softened home values in the area.

In Greater Vancouver, detached home sales jumped 31% between Q1 and Q2, with the Island-Gulf, North Vancouver, Squamish, Sunshine Coast and Whistler/Pemberton being the most popular markets.

"For those buyers that were active in Q2, improved housing affordability due to easing prices and the threat of higher rates down the road clearly provided the impetus for many to leap into detached home ownership," says Alexander. "Greater selection, particularly in coveted hot pockets, also played a significant role in April and May as the pandemic-fuelled buying spree drew to a close. Buyers locked into five-year fixed terms as the overnight rate hovered between 1% in early April to 1.5% in early June."

In addition, current market conditions are giving rise to a narrowing of the "spread" -- defined as the difference between the selling price of an existing property and the purchase price of a new one -- which is working in favour of buyers. With real estate prices seeing a bit of a dip, home sellers are trading up to larger homes or more desirable, centrally-located neighbourhoods.

"Buying intentions overall are expected to remain healthy, even if some buyers pause temporarily," says Ash. "While interest-rate hikes have edged up carrying costs, we can't discount the effect of the tight rental market, which has seen average rents increase by double-digits year-over-year in the GVA and GTA. As potential buyers face those realities, many will still conclude that the benefits of ownership make better financial sense."

As for the areas that buyers are gravitating to, there are a few outliers.

Within the GTA, Toronto's West End, W04, and W06 saw the most notable uptick in home sales. Buyers after central location drove a 26.5% increase in sales in Toronto’s East End, while buyers seeking affordability drove an increase in sales in Ajax, Whitby, Clarington and Scugog in Durham Region between Q1 and Q2.

Meanwhile, within Greater Vancouver, Burnaby, Coquitlam and Port Coquitlam have attracted buyers after affordability and centrality. North Vancouver and Squamish have also registered strong buyer interest and sales activity.

With all of this said, activity inventory is down in both Greater Toronto and Vancouver. In June, active detached housing listings in the GTA were around 19% below the 10-year average, and in the GVA, listings were around 12% below the 10-year average.

Those numbers are poised to increase down the lines due to builders shelving projects and proposals in the face of increased development fees and material costs.

"Inventory remains a puzzle that policy can't solve in the foreseeable short or long term," says Alexander. "It's a real challenge, as supply of detached homes remains low from a historical perspective and also in the context of population growth and future needs. This will remain a crucial factor impacting Toronto and Vancouver, which are now seen as world-class markets. Tougher market conditions and a possible recession will be major market hurdles, but history reminds us that recessions often bring strong rebounds. There's always a reason buyers say, 'I wish I'd bought back then.' Real estate has traditionally stood the test of time. Looking ahead, urbanization alone will be a significant boon to future housing demand, as Canada's urban population is projected to grow by 10 million by 2050.”