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Smaller communities have taken bigger housing market hits from rising interest rates than bigger cities, but have still had greater increases overall in property values since the start of the pandemic when compared to Toronto and Vancouver.

The most desirable small communities, such as those within a couple hours of Toronto, uniformly saw skyrocketing prices over the pandemic as people left big cities for remote work. But similar to how those markets had larger value increases during the pandemic, they’re also seeing larger decreases as the Bank of Canada increases interest rates.

The recent drops have been significant in Ontario municipalities such as St. Catharines and London, where the average selling price in December, 2022, was down between 14 and 15 per cent from 12 months prior, according to data provided by real estate marketplace Zolo Realty. The drop was even more steep in Belleville, which was down 25 per cent in December.

Those numbers are large when compared to a year-over-year drop of just 9 per cent in Toronto.

However, Kevin Ali, vice-president of operations with Zolo Realty in Toronto, said average selling prices are still up between 30 and 40 per cent in many small communities today when compared to December, 2019, before the pandemic. That’s compared to a 25-per-cent increase in Toronto from December, 2019, to December, 2022.

The situation was similar in British Columbia, where regions such as the Okanagan and Kootenay had price drops of roughly 17 per cent and 13 per cent, respectively, from their January, 2022, peak to their current level in December, 2022. The Metro Vancouver area only dropped 11 per cent during the same time.

However, the overall increase in pricing remained higher in smaller B.C. communities when compared to Vancouver.

Realtors in these smaller communities say lower inventory numbers, a sense of confidence over the long-term viability of their markets, and a lack of urgency to sell because of more affordable mortgage payments are creating an environment in which sellers are unwilling to budge much from their listing prices.

Jeff Nelles, broker and manager of Royal LePage ProAlliance Realty in Belleville, said people in his community may not be as financially pressed by high interest rates because anyone who bought in the early stages of the pandemic or earlier didn’t likely stretch themselves to own a home as much as someone in Toronto did.

“People are able to hang on and pull through it,” said Mr. Nelles, adding that even though there is worry of a recession, mass layoffs haven’t materialized and so homeowners aren’t heavily under pressure.

“We’re not seeing a ton who are going to get underwater in this, especially anyone who bought prior to 2020.”

Revelstoke, B.C., a small ski community in the province’s Interior, is one place that had explosive growth in the past three years. BC Assessments, a Crown corporation, put the average value of a Revelstoke home at $801,000 in June, 2022, a 57-per-cent increase from $509,000 in June, 2019.

Despite recent softening in the market, Century 21 Executives realtor John Sparrow said some properties will stay on the market for more than 100 days before eventually selling for close to their listing price.

“People say they have the utmost confidence in Revelstoke that, even if it’s fallen off the high point, it’s going to come back, so let’s hang on to it,” said Mr. Sparrow, who noted the lack of supply in town is a large factor.

Sellers not budging on their pricing may put buyers in a tricky situation as they deal with high prices and high interest rates at the same time, but Mr. Sparrow said buyers are in a better situation than two years ago because there is at least time to negotiate and make conditional offers. He added there sometimes are deals to be found from motivated sellers.

It’s a far cry from the frenzy in Revelstoke during the height of the pandemic, where properties were sometimes being snapped up sight-unseen and prices rose dramatically.

Other desirable markets such as Penticton in the Okanagan region of B.C. have also faced little downward pressure on prices. Realtor Shannon Simpson said overall they have only seen a 2-per-cent decrease year-over-year in December, a tiny drop when compared to Metro Vancouver, where prices fell from their January, 2022, peak by 11 per cent by December, 2022.

Local realtors painted an optimistic picture for 2023 in their small communities, with Mr. Nelles in Belleville saying there is a pent-up demand as people have waited on the sidelines to see what’ll happen next with interest rates.

At the first sign of decreasing rates, he expects buyers to pile back in to try and take advantage of any lingering low prices. Sellers are still receiving multiple offers when a house hits the market at a particularly competitive list price since inventory is so low and incoming people from Toronto have so much buying power.

“There’s a lot of people sitting on the sidelines and pent-up demand is going to be there,” said Mr. Nelles.

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