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Population growth and revitalized consumer confidence in the country’s largest real estate market is expected to drive Canadian top-tier real estate performance in spring 2019. New data compiled bySotheby’s International Realty Canada reveal that Greater Toronto Area top-tier sales have stabilized from previous years’ unpredictability, with sales over $1 million down a nominal 2% year-over-year in the first two months of 2019. A shortfall in inventory over $4 million, as well as a shift of luxury real estate transactions to off-market and private channels resulted in a 38% decrease in MLS® sales compared to the first two months of 2018; however, demand for luxury housing remains robust leading into spring. While buyers’ market conditions remain entrenched in Vancouver as the city started the year with 52% and 50% declines in sales over $1 million and $4 million respectively, pent-up demand and a positive shift in market confidence are palpable.
There are strong indicators that home buyers and sellers are on the brink of re-engaging in Vancouver’s top-tier market; whether this occurs in spring will be dependent on whether housing prices adjust downward to meet current market conditions. Following a record-setting 2018, Montreal is projected to experience a stable spring market: sales of $1 million-plus real estate increased 6% year-over-year in the first two months of 2019, while the city’s market for condominiums over $1 million soared 53%. Top-tier market performance in Calgary remains burdened by excess inventory and soft demand. With sales over $1 million down 33% year-over-year in January and February, the city continues to endure a prolonged recovery.
“Toronto’s top-tier real estate market has gained consistent and steady traction in the early months of 2019, and is primed for healthy spring performance. The ceiling for sales activity will be determined by inventory, as consumer demand continues to rise,” says Brad Henderson, President & CEO of Sotheby’s International Realty Canada. “Vancouver remains a buyers’ market, but has transformed to one where pent-up demand is verging on activity. Consumer interest is solid, and so is confidence in the enduring value of Vancouver real estate. The question will be whether prices adjust to facilitate more transactions this spring, or in a later season.”
According to Henderson, Montreal’s luxury market maintains strong potential to set new records this spring, while Calgary’s top-tier market remains vulnerable to the region’s continued economic downturn, as well as its sharp build-up of housing inventory.
Key National Influencers:
Positive population growth remains an under-reported but defining influence on top-tier and conventional real estate demand in Canada’s largest metropolitans areas. According to Statistics Canada, annual population gains in Toronto, Vancouver and Calgary outstripped the national average of 1.4%, rising 2.5%, 1.6% and 2.1% respectively in late 2018, while Montreal experienced a 1.3% year-over-year lift. With immigrants and permanent residents contributing the most significantly to population growth, the country’s leading gateway cities for new Canadians, Toronto, Montreal and Vancouver, will continue to see inflows that will bolster the need for housing.
Vulnerabilities in the Canadian economy, including below-anticipated performance in consumer spending, exports, and investment, are casting shadows on Canadian top-tier market performance this spring. According to the Conference Board of Canada, national GDP growth is expected to slow to 1.9% this year, while provincial growth forecasts have decelerated to 1.8% in Quebec, 2.1% in Ontario, and 1.3% in Alberta. British Columbia’s real GDP growth is projected to strengthen to 2.5% in 2019 as investment in the energy sector offsets a housing market correction. The Bank of Canada, in reaction to a deeper than expected economic slowdown in the fourth quarter of 2018, downgraded its forecast for the first half of 2019. In spite of these risks, local market fundamentals such as inventory and regional consumer confidence are expected to prevail as dominant influencers on top-tier market performance in the immediate future.
Following multiple rate hikes since 2017, the slowdown of the global and Canadian economies prompted the Bank of Canada to hold its target overnight rate at 1.75% in March, evoking speculation that interest rates may stabilize or roll back in 2019. While recent rate increases have had a negligible effect on ultra-luxury real estate consumers, steady or lowered costs of borrowing would soften the impact of rising housing costs and stricter lending guidelines for purchasers in the market for conventional and top-tier homes under $2 million, facilitating activity in the market.