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Major markets have started to diverge, at times ‘unpredictably,’ Sotheby’s says
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Canada’s luxury housing market has bounced back in recent months, but it’s also undergone a major change: the country’s four biggest markets can no longer be painted with the same broad brush.
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Activity sprang to life in the luxury real estate market as a whole in the second quarter, with buyers and sellers re-engaging after waiting on the sidelines amid the Bank of Canada’s aggressive interest rate hiking campaign, according to Sotheby’s International Realty Canada’s mid-year report on the state of the market. But the market has diverged in major cities as local influences such as migration, supply and buyer intentions weigh heavily on individual markets.
Luxury housing has entered a new era, the report said, and performance trends based on national averages no longer apply to all regions, even as cities face similar challenges from interest rate increases — which have boosted mortgage rates — and uncertainty over the economy.
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“The second quarter of 2023 marked a turnaround point for consumer activity,” Don Kottick, chief executive of Sotheby’s Canada said in a news release. “At the same time, Canadian luxury market performance has started to diverge, at times unpredictably, between major cities, neighbourhoods and housing types.”
In Vancouver, for example, buyers flooded back to the market and ultra-luxury sales of residences above $10 million grew significantly in the first half of the year, spiking 38 per cent from a year earlier. Sotheby’s said activity was driven by a greater transfer in wealth between generations, consumer confidence and wealth planning. As a whole, the market returned to more balanced conditions, even as a shortage of supply and higher mortgage rates muted sales in some categories. Sales of houses with $1-million price tags and higher were down 25 per cent.
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Toronto, home to the country’s biggest luxury market, also experienced steady activity amid population gains from immigration and as buyers and real estate investors returned overall. But a lack of supply kept a lid on transactions in the city, and sales of homes priced above $4 million were down 32 per cent compared to last year. Homes with price tags of $1 million or more experienced a 27 per cent drop in sales. Outside the city in the Greater Toronto Area, an injection in listings led to a more balanced market, Sotheby’s said.
Montreal’s market, however, pulled back in the first part of 2023, and sales of homes above $4 million fell 39 per cent, while transactions of homes priced above $1 million fell 28 per cent, compared to the same time last year. More listings and higher interest rates helped tilt power toward buyers, and homes stayed on the market longer. Under current conditions, buyers are less willing to pay a premium for homes, and sellers have been reluctant to drop prices. However, that might change over the summer, the report said.
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“Montreal’s luxury market is rebalancing to accommodate negotiation and conditions that skew in favour of buyers, particularly in the city’s condominium segment,” Kottick said.
But Calgary might be home the healthiest and brightest luxury market as newcomers flood into the city. Calgary is experiencing a boost in population growth as people from around the country move to the city to take advantage of affordable home prices amid a flourishing economy. Indeed, the city saw a 208 per cent increase in newcomers from other provinces in the first half of the year compared to 2022. That’s had a major impact on the luxury market, and sales of condominiums priced above $1 million have risen 100 per cent since the same time last year. Sales of homes priced above $1 million and $4 million fell a “nominal” 10 per cent and 20 per cent, respectively, Sotheby’s said.
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Though luxury market activity was strong across the country, economic uncertainty and higher mortgage rates are still keeping one segment of buyers on the sidelines, Sotheby’s said. Compared to wealthier buyers and investors, a large number of “conventional” buyers are sitting back, hoping for an improvement in mortgage rates, inflation and property prices, Kottick said. However, that might be a mistake.
“(It’s) a strategy that Sotheby’s International Realty Canada experts flag as posing considerable risks given the unpredictability of the housing market,” the report said.
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The rate of inflation cooled in June, rising 2.8 per cent, and bringing it within the Bank of Canada’s target range of one to three per cent.
Analysts surveyed by Bloomberg had expected inflation to rise three per cent year over year.
A 21.6 per cent decline in gasoline prices helped bring the reading down. However, grocery store prices rose 9.1 per cent and mortgage interest costs grew 30.1 per cent.
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Today’s Posthaste was written by Victoria Wells (@vwells80), with additional reporting from Financial Post staff, The Canadian Press, Thomson Reuters and Bloomberg.
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