Canada

Canadian Luxury Home Sales Forecast To Fall, As Market Normalizes: E&V

Canadian real estate is cooling from record demand, and luxury homes are no exception. Global luxury brokerage Engel & Völkers (E&V) released its latest luxury market report. They looked at markets with homes priced over $1 million and found sales slowed recently. In the near term, this should help the market normalize and stabilize price growth. A big change from the overheated frenzy seen in the first half of the year.

Canadian Luxury Home Sales Peaked In March

The firm notes the market began to cool in April, with fewer buyers showing up on offer nights.”… inventory is rising and buyers are seeing less competition,” they said.   

The near-term expectation is Canadian luxury home sales will cool further. It may seem shocking to hear a brokerage say that, but this is in line with the real estate industry’s forecast. It’s just not super popular for brokerages to repeat the sentiment out loud. Falling sales are forecast to stabilize the market and slow price growth. This should make it healthier in the long run.

Before we get to regional markets, it’s worth mentioning an anecdotal point. E&V found “many” of their clients that moved to rural areas, didn’t sell their city properties. Instead, they held onto the city home, and plan to use it as an investment property or a pied-a-terre. No, it’s not just interesting because it makes you super jealous of buyers with two luxury homes.

Buyers are increasing leverage and their exposure to residential real estate. Moving also doesn’t translate into more inventory necessarily. This can provide a floor for luxury price declines, depending on how popular this trend is. Wealthier clients in the luxury segment aren’t adding to the inventory as they leave. They’re occupying even more real estate. 

Conversely, increasing leverage increases the vulnerability to an economic shock. This isn’t a demographic likely to default, but it’s also not one to ride losses either.

Now, let’s take a look at Toronto and Vancouver.

Toronto Luxury Real Estate Has Seen Explosive Inventory Growth

The brokerage is bullish on Toronto luxury real estate over the long term. Short-term they see things slowing down with the rest of the country. March was the 2021 peak for home sales, a general theme across Canada and the US. The luxury market also observed a similar timeline for its peak volumes.

The slowdown in luxury home sales also came with an increase in inventory. Active listings for homes over $1 million surged in May, climbing to 652 units. This was more than triple the volume seen for any prior month in 2021. June followed with a bigger increase, with 1,073 active listings for luxury homes.

Greater Toronto Active Listings For Luxury Homes

The number of active listings on the MLS for homes prices $1 million or more across Greater Toronto.

Source: E&V; TRREB; Better Dwelling.

Luxury homes are also seeing falling dollar volumes, with a drop in average price. Homes sold over $1 million hit a record high in April with an average price of $2.85 million. In June, the average price for this segment cooled to $2.79 million. A drop of $60,000 on the average over two months is nothing to sneeze at.

Vancouver Luxury Real Estate Peak In March

Greater Vancouver’s luxury real estate experienced a similar setup to Toronto. March printed the all-time record high for total real estate sales. Home sales have slid lower since then. Once again, it fits the general trend seen across the country.

The number of listings for luxury homes climbed over the past few months. There were 6,593 active listings for homes priced over $1 million in June. It was a small decline from the 6,762 listings seen in May. Both months had much higher inventory than earlier this year, when sales were stronger.

Greater Vancouver Active Listings For Luxury Homes

The number of active listings on the MLS for homes prices $1 million or more across Greater Vancouver.

Source: E&V; REBGV; Better Dwelling.

The average sold price for luxury homes in Greater Vancouver is also off the peak. The average sale price fell to $1.62 million in June, a substantial haircut from the 2021 peak of $1.83 million in March. Luxury buyers are pulling the trigger on homes $200,000 lower than just a few months ago.

Most Canadian real estate markets have seen things cool, including these luxury markets. Cheap money isn’t getting any cheaper, and domestic demand is looking tired these days. The brokerage does see one headwind that can boost demand — reopening the border to immigration. They see this as providing a fresh influx of new capital for luxury markets.

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