Ontario Housing Affordability 2022: From Peak to Correction

The February 2022 national average sale price of $816,720 was the highest in Canadian history. Ten months later, it is closer to $630,000. The Bank of Canada's overnight rate has gone from 0.25% to 4.25%. And the Ontario housing market has experienced a sharp correction. This is the year-end accounting of what happened, and what it means for anyone buying, selling, or holding a mortgage in Ontario.1110

The February Peak

The first two months of 2022 were a continuation of the 2021 frenzy. Buyers who had been pre-approved at pandemic-era rates rushed to lock in purchases before anticipated rate hikes. The result was a final burst of buying that pushed prices to their absolute peak.

In the GTA, the average selling price hit $1,334,544 in February, the highest on record at the time. Markets outside the GTA that had previously been considered more affordable also reached new peaks that winter. Every metric pointed to a market at its absolute ceiling.12

Behind the scenes, the stress test was already doing its intended work. Buyers had been qualifying at 5.25% (the minimum qualifying rate), meaning their actual payments at 1.89% or 2.19% were well below their tested capacity. This built-in buffer would prove important for what came next.9

Seven Rate Hikes in Ten Months

The Bank of Canada began hiking on March 2, 2022. What followed was the most aggressive tightening cycle in the Bank's modern history:17

In total, the overnight rate increased by 400 basis points in ten months. The prime rate, which directly affects variable-rate mortgages, went from 2.45% to 6.45%. A borrower with a variable-rate mortgage at prime minus 1.00% went from paying 1.45% to 5.45%, nearly quadrupling their interest cost.10

The Correction: How Far and How Fast

The housing market responded almost immediately. By April, the frenzy of January and February had evaporated. By summer, prices were falling month-over-month across virtually every Ontario market. By fall, the correction was unmistakable.

From the February peak, the TRREB average selling price for the GTA had fallen to $1,079,395 by November, a decline of approximately 19%. By December, the average had fallen further to $1,051,216, down approximately 21% from the peak.12

The pattern across Ontario was consistent: markets that had the largest pandemic-era gains tended to see the sharpest corrections, while downtown Toronto, which had underperformed during the pandemic, held up relatively better. Figures for individual markets outside the GTA come from different real estate boards; we have not included specific numbers for those markets here because we could not confirm them against a single consistent source.

Sales volume collapsed even more dramatically than prices. National sales in November 2022 were down roughly 39% year-over-year. Many potential sellers pulled their listings rather than accept lower prices, which kept inventory from surging and prevented even steeper declines.11

The Affordability Math: Lower Prices, Higher Rates

Here is the counterintuitive result of 2022: homes are cheaper than they were in February, but for most buyers, they are not more affordable. The monthly cost of carrying a mortgage has actually increased despite the price correction.11

Payments assume a fixed-rate mortgage with semi-annual compounding, the standard basis for Canadian mortgages, and a 25-year amortization.

The monthly payment is nearly identical. But the stress test now applies at a higher rate (5.14% + 2% = 7.14%, versus the 5.25% minimum that applied in February), which offsets much of the effect of the lower price on how much a buyer can qualify for. And the total interest paid over the term is about $62,700 higher. The buyer in December gets a cheaper house but pays more for the mortgage.

The Variable-Rate Reckoning

The most acutely affected group is variable-rate borrowers. Many buyers in 2020 and 2021 chose variable rates in the 1.20% to 1.60% range, betting that rates would stay low. Most had adjustable-rate mortgages (where the payment changes with the rate) or fixed-payment variable mortgages (where the payment stays the same but the principal/interest split changes).

For adjustable-rate borrowers, the payment shock was immediate and severe. A borrower who took out a $600,000 mortgage at variable 1.40% in mid-2021 had a monthly payment of approximately $2,380. That same mortgage at a variable rate of 5.45% has a monthly payment of approximately $3,650, an increase of $1,270 per month, or over $15,000 per year.

For fixed-payment variable borrowers, the issue is different but equally concerning. Their payment has not changed, but at current rates, their entire payment (and sometimes more) goes to interest. They are making negative amortization: their mortgage balance is actually growing each month despite making payments. Some have hit their trigger rate, forcing a payment increase or a lump-sum payment.

What This Looks Like for Real Buyers

The following is an illustrative example, not a specific client file, and the home prices used are below Ottawa's board-wide average so the math works for a moderate first purchase. A young professional in Ottawa, household income of $110,000, with $80,000 saved, is shopping for a home priced around $640,000 in February 2022. At a 5-year fixed rate of 2.69%, OAC, they qualified for a mortgage of approximately $495,000. With $80,000 down, they could purchase up to $575,000. Close, but they would have needed to compete in bidding wars with limited conditions.

By December 2022, that same home has come down to approximately $565,000. That helps. But the 5-year fixed rate is now 5.14%, OAC. Under the stress test at 7.14%, the same buyer qualifies for approximately $410,000. With $80,000 down, maximum purchase price: $490,000. The buyer can actually afford less than they could in February despite the home being $75,000 cheaper.

For context, Ottawa's board-wide average sale price for residential-class homes was approximately $837,500 in February 2022 and approximately $656,000 in December 2022, a decline of about 22% driven partly by a shift in the mix of homes selling.1415

This is the central frustration of the 2022 correction for buyers: the market has cooled, conditions have improved (no more blind bidding, inspections are back), but the financial math has not meaningfully improved.

Where Do We Go From Here

The Bank of Canada may not be done raising rates. Inflation, while showing signs of easing, remains well above the 2% target. The Bank has been clear that it will do what is necessary to bring inflation under control, even if that means further tightening.

At the same time, the structural factors that support Ontario housing prices have not changed. Population growth through immigration continues. Ontario is not building enough housing units to meet demand. Zoning reform is slow. Construction costs have increased. The supply gap that existed before the pandemic still exists.

We believe the most likely scenario is a period of price stabilization rather than further steep declines. But we have been surprised before, and anyone who claims to know what happens next with certainty is guessing.

What we can say with confidence: this is the first buyer-friendly market in Ontario since 2019. Conditions have shifted. Buyers have leverage. If you can qualify at today's rates and the monthly payment works for your budget, the improved negotiating position may be worth more than waiting for a rate environment that may or may not materialize.

For the first time in three years, Ontario buyers have the ability to do proper due diligence: inspections, financing conditions, and time to think. That alone has enormous value.