The upper tier of the Canadian real estate market is beginning to “normalize” again after two years of unprecedented growth, fueled by pandemic buyer demand, record high borrowing costs and chronic housing shortages in markets across the country.
According to Sotheby’s International Realty Canada’s Top-Tier Real Estate: Mid-Year Report, conditions began to return to historic norms in the second quarter of this year, as rising mortgage rates, inflation and geopolitical volatility dampen housing demand. However, as equilibrium slowly begins to return to the market, luxury real estate has remained in high demand in Canada’s largest urban centres.
“We are coming off a few years of what has really been a record anomaly in terms of the real estate market,” Don Kottick, president and CEO of Sotheby’s International Realty Canada, told STOREYS.
“We have seen the seasonal and cyclical fluctuations that we were used to before the pandemic blow out the window and now I think we are almost seeing a return to a more normalized market. Obviously, there are nuances in the different markets across the country.
He adds that while the market will likely be shaken in the near term due to the recent rise in interest rates – the Bank of Canada implemented a surprise 1% increase in its overnight lending rate last week. – that it continues to be supported by chronic undersupply will continue to support demand, with activity expected to resume in time for the fall market.
“I think different segments of the market are going to be hit harder,” he says. “Obviously, first-time buyers — it’s going to be a little harder for them to borrow money, and the conventional market will be somewhat influenced by what’s happened. When you get to luxury and the ultra-luxury space, they’re not as dependent on interest rates as they are in the other two segments.
Overall, Kottick says luxury markets continue to show robust activity across the country, even taking into account last year’s record trends.
Toronto: a slow but steady return to equilibrium
As Canada’s largest luxury market, the Greater Toronto Area began to see a slow return to equilibrium in the first half of the year, although home sales of more than $4 million still exceeded last year’s figures by 7%. This was seen across all types of luxury homes, including condo sales, which rose 13%.
READ: Average home prices in the GTA are down $200,000 from February’s peak
While sales of single-family homes in this price range have only risen 6% year over year, Mr. Kottick says this reflects a lack of available inventory rather than a drop in demand. . This in turn has put increased pressure on the luxury attached home market, which has seen sales double in the first half, outpacing the first six months of 2021.
“I think it comes down to, in Toronto, the chronic lack of housing, especially when you go into single-family homes,” he says. “Once you have a shortage in one market segment, it spills over to other market segments, and then people are like, ‘Okay, what’s the next closest house classification?’”
Across all home types, sales of homes priced over $1 million have fallen 10% annually in the region.
However, the ultra-luxury segment – homes priced above $10 million – continued to sizzle with a total of 16 transactions, one more than the record set in the first six months of last year.
Vancouver: buyers and sellers stay away
Canada’s largest west coast city has seen the most dramatic turnaround in activity and consumer confidence between the first and second quarters of 2022 amid the unbridled shopper urgency that has prevailed during the pandemic began to calm down; Residential sales over $4 million were down 18% year-over-year, with just nine properties over $10 million selling on MLS, compared to 16 between January and June last year.
The mood of post-pandemic buyers “changed sharply in March,” reads the report, due “amid a clouded global backdrop of clouded geopolitical conditions, Vancouver real estate buyers and sellers faced a steady rise mortgage rates, record house prices and rising living costs with growing unease.
READ: Home prices in Metro Vancouver slide 2% from May to June
While market supply and demand fundamentals remain strong, rapidly changing conditions have prompted buyers and sellers to take their time, retreating to the fringes of the conventional and luxury housing markets.
As a result, sales of detached and attached single-family homes over $4 million have fallen 22% and 40%, respectively, while sales of luxury condos have increased 32% annually. Overall, residential sales over $1 million fell 18% in the first half of 2022, reflecting a better market balance in the city.
Calgary: Canada’s Biggest Luxury Competitor
The land of wild roses is starting to make a name for itself in the luxury home market; Calgary has seen the largest increases in sales of homes priced over $1 million of any metropolitan real estate market, with activity jumping 40% annually. The $1M+ single-family segment grew 36%, followed by a whopping 85% increase for attached home sales and 89% for luxury condo sales. A total of five properties sold for more than $4 million, including one above that price in the first half of 2021.
The city is experiencing something of an economic resurgence, with consumers and businesses regaining confidence after the pandemic. The fact that local real estate, even in the luxury segment, is comparable in price to other major markets has also been a draw, stimulating immigration and investment from other Canadian cities.
“Affordability definitely has a hold, and there’s also a lot of optimism right now,” Kottick says of Calgary’s fortunes. “They’re coming out of the Calgary Stampede and it was like a rebirth for that market. the pride of being an Albertan and the confidence of business people. There are a lot of companies that are considering moving to Calgary just because the tech market there has also picked up and there are a lot of commercial properties; you can get a lot more for your home and so the cost of living isn’t as high as other parts of the country, and that’s why we’re seeing a lot of people leaving Ontario and heading to west.