KEY INFLUENCES

Severe Inventory Deficit Sparks Price Gains, Undermines Sales
A severe shortage of conventional and luxury inventory across Toronto, Vancouver and Montreal undermined potential sales across the conventional and luxury markets for condominiums, attached, and single-family homes, and will continue to thwart transactions this fall. Calgary, which tipped into true sellers’ market conditions over the summer months and saw diminished supply sparking bidding wars for premier single-family homes, is projected to experience more balanced conditions.

Frenetic sellers’ markets that drove luxury residential sales over $4 million up year-over-year by 276% in the GTA, 152% in Vancouver, and 133% in Montreal over the first half of 2021, incited heated bidding wars that increased housing prices to historic highs. Sales tapered briefly over the summer as frustrated and fatigued home buyers withdrew from the market, while prospective sellers reconsidered the challenges of navigating market conditions that offered limited choices should they place their home on the market. The lulls in these markets were brief and masked underlying consumer demand.

Activity has resurged in the preliminary weeks of fall. While a balanced market is anticipated for Calgary, extreme demand-supply housing imbalances across Toronto, Vancouver and Montreal are deeply embedded. This is now revealing itself in increased activity in the comparatively accessible top-tier condominium market, buyer fatigue and hesitancy, market conditions that almost universally skew in favour of sellers, and continued price gains in the months ahead.

Return to City Living Ignites Urban Sales & Condominium Demand
Although the pace of recovery was uneven across major metropolitan markets, most Canadian jurisdictions had near-final stages of public health reopening plans in place by August 2021, with restaurants, entertainment venues, retail and personal service businesses, and recreational facilities generally open at varying capacity requirements. Furthermore, non-essential travellers from the U.S. who were fully vaccinated were permitted to enter the country without quarantine requirements as of August 9, expanding business vitality in downtown areas. With broadening immunization coverage increasing public confidence, city centres and downtown cores re-energized at a faster pace than any point in time since the pandemic’s inception in March 2020.

As a result, demand for luxury real estate in the heart of Canada’s major urban centres has increased more steeply, most notably, in the market for high-end condominiums. This has been further magnified by the shortage of single-family and attached home supply, and resulting affordability challenges, which are compelling prospective buyers across every generation into condominiums out of necessity. In recent months, across every metropolitan market, top-tier condominium sales activity has exceeded industry projections and contradicted anticipation of a seasonal summer slowdown. In the GTA, which has seen demand for luxury condominiums steadily increase since the start of 2021, sales of luxury condominiums over $4 million were up 40% year-over-year in July and August. Montreal’s luxury condominium sales surpassed optimistic industry expectations over the summer months, as $1 million-plus sales increased 30% year-over-year, with $4 million-plus condominium sales remaining consistent. Similarly, sellers’ market conditions were sustained in Vancouver’s top-tier condominium market through the summer, as sales over $1 million increased 22% year-over-year and luxury condominium sales over $4 million remained on par with 2020 levels. Calgary’s conventional and luxury condo market, with ample supply that heavily skewed the market in favour of buyers for several years, saw a noteworthy increase in luxury activity: in July and August, $1 million-plus condominium sales doubled from previous year’s levels, and consumer and investor enquiries rose significantly.

With post-pandemic urban life reinventing itself, revitalized consumer and investor confidence positions every major metropolitan luxury condominium market for steady gains this fall.

Job Gains Bolster Top-Tier Real Estate Sales
Steady, albeit uneven, gains in the Canadian job market have supported positive consumer confidence across the conventional and luxury housing market. Employment rose for a third consecutive month in August 2021, up 0.5% year-over-year, while the unemployment rate fell by 0.4% to 7.1%, the lowest rate since the pandemic’s start. During this time, unemployment rates fell in every major metropolitan real estate market. Vancouver’s August unemployment rate saw the most dramatic decline as it fell to 7.1% (down 5.9% year-over-year), while Montreal’s unemployment rate fell to 7.0% (down 4.9% year-over-year). Although unemployment rates in Toronto and Calgary remained above the national average, they also decreased to 9.3% in Toronto (down by 4.7%) and to 9.6% in Calgary (down by 4.8%).

Although the economic and labour market recovery remains deeply unbalanced, its improvement, particularly for mid/high wage sectors has bolstered confidence and will continue to support the recovery of Canada’s conventional and luxury housing market in the months to come.

Gap Between Luxury and Conventional Housing Trends Widen
The impact of the pandemic has differed across Canada’s housing markets and property types; however, a defining factor has been the extraordinary demand for luxury real estate relative even to the heated demand for conventional housing. Steep gains in luxury sales have been attributed to significant shifts in consumer housing needs with the pandemic, and the increased willingness and capacity for affluent home buyers to invest in housing necessities and luxuries. Over the course of 2021, this has resulted in several historic, record-breaking sales, including Sotheby’s International Realty Canada’s sale of the highest-priced condominium in Québec’s history in Montreal, and its recent sale of the Greater Vancouver region’s highest single-family residential sale on a single lot.

According to Sotheby’s International Realty Canada experts, the gap between luxury and conventional consumer market behaviour and trends is set to widen. On one hand, luxury real estate consumers will continue to drive new levels of activity in the metropolitan and recreational housing markets to fulfill post-pandemic lifestyle needs and tastes. Extensive luxury home renovations, as well as elevated luxury amenities and finishings driven by this consumer group will permanently transform luxury housing stock and place upward pressure on future high-end real estate prices. This cohort will also be at the forefront of accelerating intergenerational wealth transfer into the single-family home market. At the same time, the desire for elevated levels of privacy and discretion amongst this cohort, will shift an increasing number of ultra-luxury transactions to exclusive global sales and marketing networks.

At the same time, first-time buyers and conventional housing purchasers face increasing barriers, particularly in the single-family home market, given rising prices, tighter mortgage qualification criteria and the risk of eroding buying power given recent inflation. Sotheby’s International Realty Canada continues to underscore the urgent need for new housing supply across the rental, vertical, low-density and high-density spectrum to support residential mobility, and to ensure housing affordability for more Canadians.

 

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*Disclaimer
The information contained in this report references market data from MLS boards across Canada. Sotheby’s International Realty Canada cautions that MLS market data can be useful in establishing trends over time but does not indicate actual prices in widely divergent neighborhoods or account for price differentials within local markets. This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information and analysis presented in this report, no responsibility or liability whatsoever can be accepted by Sotheby’s International Realty Canada, or Sotheby’s International Realty for any loss or damage resulting from any use of, reliance on or reference to the contents of this document.