For most real estate markets Canada-wide, 2018 started off stagnant due to significant government regulation changes that were aimed towards slowing down a highly competitive housing market. However, this is no surprise. The Canadian Real Estate Association (CREA) predicted there would be a 5.3% drop on average across Canada, with bigger hits in Ontario and B.C., anticipating a 10% decline in home sales over 2018. Given these changes in Canada’s real estate market, how is the luxury real estate market impacted?
The luxury home market was no exception. In the GTA, RE/MAX reported that homes priced $3 million and more fell 58% in the first two months of 2018. But, to no surprise, the report also assumed that because of consistent demand, the slump would not last for long. Luxury properties were still selling — the most memorable going for as high as $8.4 million.
Did government regulations impact luxury real estate?
There were three mortgage rules put in place for 2018 that affected all real estate transactions in Canada. One was the new mortgage stress test that was added to all uninsured mortgages, another was the restriction on loan-to-value (LTV) arrangements that avoided original limitations and the last was a requirement for lenders to enhance their LTV measurements to ensure risk responsiveness. While the mortgage stress test had the most direct impact it appears that all three helped to raise the qualification requirements for a mortgage making it harder for buyers to obtain loans for higher-priced homes.
“There was a fair amount of uncertainty due to the mortgage rules,” explains Barry Allen, Zolo.ca founder. “But with a few months since the last set of mortgage regulation changes and the market is now evening out a bit,” says Allen. As a result, buyers and sellers are adjusting their prices and expectations, says Allen, who works with buyers and sellers in BC’s West and North Vancouver. But that doesn’t mean there is a fire-sale on properties in some of Canada’s priciest communities. “Luxury buyers can’t be priced out of the market,” explains Allen. “They’re ultra-high-net-worth, which means these buyers — and sellers — are not price-sensitive.” Although there is a component of people moving up from smaller properties to larger luxury homes, most people stepping into the luxury market are shopping in the same snack-bracket as before.
What does this mean? It means that few of the new rules or regulations had an impact on the luxury market. Perhaps the biggest impact was the introduction of foreign buyer’s taxes (in Ontario and BC) and vacancy taxes (in BC). But for many luxury buyers, these are just the costs of owning a premier property.
How did the luxury market fair in the first quarter?
In the bigger metropolitan markets in Canada, the luxury real estate market was pretty uniform in the first quarter of 2018. Some agents saw little movement, while others had clients who were just waiting for a better time to sell or buy. “Because interest rates are so low, if you don’t have to sell and if the market is clear, people just hold,” says Allen. Toronto, Vancouver, Calgary and Montreal seemed to be the most affected during the first three months of 2018. The average home prices in each of these cities saw some dramatic decreases year-over-year for the tail end of the first quarter — a trend that impacted residential real estate transactions, as well as the luxury markets in Canada.
The Canadian Real Estate Association numbers shows that in March alone, the average price of homes across Canada dipped by 10.4%, compared to 2017 numbers. Greater Vancouver area dropped by a staggering 16.1%, and Toronto by 1.6%. However, in Calgary and Montreal, we saw increases of 0.3% and 6.2%, respectively.
But how did Canada’s luxury market weather the slowing Canadian real estate market in 2018? For properties priced at $10-million CDN or more, there was no significant difference in pricing or activity. However, pricing on properties between $2.5-million and $10-million started experiencing downward pressure as inventory increased from the start of the years to the end of the first quarter (March 31, 2018) and properties began to sit on the market for longer. But this downward pressure — and apparent market correction — on the luxury market, needs to be put into context, explains Allen. The average number of days properties stayed on the market before being sold did start to rise in 2018, says Allen, but only to what can be considered “more normal levels, as seen in 2015.”
That said, Allen and other luxury agents have definitely noticed a decline in the number of buyers. For instance, West Vancouver (where some of the priciest properties in Canada are located) had a 40% increase in total listings (for April 2018, year-over-year). Vancouver West only saw a 17% increase in Total listings (for April 2018, year-over-year), with no significant change in Vancouver East or North Vancouver. Still, it’s too early to attribute increased or new property taxes (some specifically aimed at luxury buyers, sellers and homeowners).
What can we expect in the Canadian luxury market this year?
Luxury real estate agents are confident that they will see good transaction details in 2018, even when compared to the unusually busy 2017 market.
According to the Engel & Völkers Canadian Market Report the market trends show that Vancouver will see strong growth, particularly in luxury condos in neighbourhoods like Gastown and East Side downtown. Despite the higher prices, analysts believe that demand will keep up with supply. In Montreal, there are predictions that the luxury market will continue to grow as steady demand for luxury neighbourhoods such as Westmount and Sud-Ouest continue to put pressure on the desire for luxury properties. Despite an overall market correction in the Greater Toronto Area, the luxury market in Toronto is expected to see plenty of growth primarily due to a continued lack of supply of actual luxury properties (properties that cater to the high-net-worth and ultra-high-net-worth global communities). Lastly, Calgary is predicted to see its luxury real estate market bounce back from it’s post-oil price slump drop. The inner-city is expected to be particularly hot.
For most luxury home buyers, “the move to buy is not driven by affordability,” says Allen. “It’s driven by personal choice.” This is why the luxury real estate market will remain golden across the country.