Cheryl Thompson

2018 Spring Market Forecast

Montreal is projected to lead Canadian luxury real estate in market performance in spring 2018, as strong economic fundamentals and soaring consumer confidence drive demand and elevate prices in the market for homes over $1 million. New data compiled by Sotheby’s International Realty Canada for the preliminary months of 2018 also suggest continued recovery in top-tier real estate in Calgary, where January and February sales over $1 million rose 45% year-over-year.

Almost one year after the introduction of Ontario’s Fair Housing Plan, top-tier market activity in the Greater Toronto Area is projected to steady at healthy levels this spring; while $1 million-plus unit sales are projected to fall short of 2017’s record highs, the condominium sector is expected to buoy market performance with steady gains. The gap in performance between Vancouver’s $1 million-plus detached and condominium markets is also set to widen this spring. Uncertainty introduced by the British Columbia government’s new demand-side taxes and policies are expected to diminish activity in the detached home segment, while spring condominium activity is expected to maintain the momentum experienced in the first two months of 2018, which saw sales volume spike 51% year-over-year.

“Montreal has been Canada’s ‘dark horse’ in luxury real estate. For many years, political uncertainty and a stagnant economy tethered performance, but those factors have now dissipated,” says Brad Henderson, President & CEO of Sotheby’s International Realty Canada. “This spring, we expect strong gains that will set new records for the city.”

According to Henderson, Calgary is expected to see an uptick in high-end sales activity as homebuyers and sellers emerge from a prolonged stalemate over pricing expectations to re-engage in the current market reality. Meanwhile, Canada’s two largest metropolitan centres will grapple challenges.

“Rising prices and the lack of affordable options is continuing to pressure the Toronto and Vancouver markets. Consumers are deadlocked in their ability to buy and move – their diminishing willingness to transact is slowing activity,” says Henderson. “In Vancouver, the new housing measures introduced in February cast confusion and uncertainty into the consumer mindset. While demographic trends and housing needs will support the top-tier condominium market, disruption in the overall real estate market is inevitable.”

Key National Influencers:

Montreal:

Following 2017, which saw residential real estate sales over $1 million rise 20% year-over-year to 734 units sold, Montreal’s luxury real estate market is poised to lead Canada’s major metropolitan centres in spring 2018, as strong economic and political fundamentals and soaring consumer confidence drive demand and elevate prices.

Sales data in the initial two months of 2018 foreshadow spring performance. Driven by local demand, sales of $1 million- plus residential real estate (condominiums, attached and single family homes) were robust in January and February, with sales up 20% year-over-year to 104 units sold. During this period, condominium sales over $1 million rose 33% year-over-year to 16 units sold, while top-tier attached home sales surpassed 2017 figures by 64% to 36 units. Escalating demand for luxury detached family homes has resulted in inventory levels that fall significantly short of consumer demand, leading to price gains, reduced days on market and bidding wars in the city’s prime luxury neighbourhoods. A shortage of supply also limited the sale of $1 million-plus detached homes to 2017 levels in spite of increasing demand: 52 homes sold over $1 million in January and February 2018, in line with the 53 units during the same period in the previous year.

Montreal’s position as a Canadian luxury real estate market leader is forecast to extend beyond spring. Significant investments into the city’s infrastructure, including the January 2018 announcement of a $6.383 billion capital works budget for 2018 – 2020, as well as the addition of new luxury projects, elevate the city’s long-term liveability and housing values. These factors, along with the city’s position as one of Canada’s most cost-effective luxury real estate markets, are expected to drive record performance well into 2018.

Greater Toronto Area (GTA):

Almost one year after the April 2017 introduction of Ontario’s Fair Housing Plan, and with no signs of new policy headwinds to come in 2018, the Greater Toronto Area (Durham, Dalton, Peel, Toronto and York) top-tier market is projected to steady at normalized levels this spring.

On the heels of 2017, which saw $1 million-plus residential real estate sales (condominiums, attached and single family homes) hold steady with a 5% year-over-year increase to 20,623 units sold, while sales over $4 million increased 35% to 391 units, market confidence, consumer psychology and top-tier sales activity have continued to recover into 2018. The forecast for the $1 million-plus condominium market is particularly bullish, as a 2017 trajectory that saw sales volume rise 59% over 2016 in the GTA, and 35% in the city of Toronto proper is projected to continue into the spring. With city of Toronto condo sales over $1 million in the first two months 2018 down only 10% from 2017’s blistering highs, spring top-tier condo activity is expected to rise with the confluence of demographic pressures from baby boomers and young families, and as affordability challenges limit consumer access to the detached and attached home markets.

Year-over-year sales data for the first two months of 2018 paint an incomplete picture of underlying market health, given the comparison to unprecedented, record-setting January and February 2017 sales figures. Relative to last year’s feverish highs, the first two months of 2018 saw sales volume over $1 million and $4 million recede 55% to 1,498 units and 56% to 31 units in the GTA, while $1 million-plus and $4 million-plus sales were down 39% and 50% in the city of Toronto respectively.

In-market consumer behaviour painted a more nuanced story. While higher lending costs and tightened mortgage financing rules placed new constraints and evoked anxiety amongst consumers in the conventional and $1–2 million sub-luxury segments of the real estate market, the market for luxury real estate over $4 million experienced rising prices, a shortfall in supply on the market, and more stable consumer confidence.

Given the GTA’s economic health, including over 15,700 jobs added provincially in February 2018, year-over-year employment growth of 4.0% in Toronto, and a below-national average unemployment rate of 5.5%, a stable top-tier market is forecast for spring 2018. Consumer demand is expected to readily absorb condominium inventory. Overall sales activity and pricing are expected to pick-up as the year progresses.

Calgary:

The resurgence of Alberta’s economy is contributing to new activity in Calgary’s top-tier real estate market, even as lingering effects of the downturn suppress prices and prolong the recovery period. The Government of Alberta’s February 2018 fiscal and economic update anticipates provincial growth to exceed previous expectations, with GDP gains adjusted upwards to 2.8% in 2018 (up from the 2.2% predicted in the 2017 Budget), and employment growth anticipated at 2.0%. An uptick in oil prices, manufacturing exports, as well as population inflows into Alberta bode well for consumer confidence in Calgary’s market for homes over $1 million.

Top-tier sales in the first two months of 2018 reflected the recuperation of consumer psychology, an increased willingness of home sellers to adjust pricing to meet market realities, as well as buyers’ readiness to act. Sales of real estate over $1 million (condominiums, attached and single family homes) were up 45% year-over-year to 94 units, with over 90% of these sold in the $1–2 million range. Detached home sales over $1 million, which comprised 82% of the $1 million-plus residential properties sold over the period, saw a 33% year-over-year increase to 77 units sold. Eight attached homes sold over $1 million in the first two months of 2018, up from five during the same period in 2017.

As activity rebounds, high inventory levels, slow absorption rates and price adjustments are projected to continue into spring 2018. Challenges in Calgary’s luxury condo market are also expected to remain pronounced: nine condos sold over $1 million in the first two months of 2018, a marginal uptick from the two sold in January and February 2017. Demand for condominiums is expected to remain soft, even as new inventory enters the spring market.

Overall, an active buyers’ market is projected for Calgary’s top-tier spring market, offering buyers ample opportunities to negotiate purchases as the city continues along its road of recovery.

Vancouver:

The introduction of a 30-point plan for housing affordability by the British Columbia government in February 2018 is expected to mute detached home sales in Vancouver’s $1 million-plus real estate market this spring, creating more favourable conditions for buyers to negotiate. Activity and price escalation in the city’s condominium and attached home markets are expected to continue.

While overall $1 million-plus sales volume (condominiums, attached and single family homes) contracted a nominal 6% during the first two months of 2018 to 510 properties sold, and $4 million-plus sales declined a modest 20% year-over-year over this time, a breakdown of performance by housing type reflects continued divergence within the top-tier market.

In the first two months of 2018, sales of single family homes over $1 million fell 39% from 2017 levels to 193 units sold, a sharper drop than the 20% year-over-year decline experienced in 2017 compared to 2016. The most significant decline was in the sale of homes between $1¬–2 million, which fell 47% from January and February 2017 levels to 85 units sold, reflecting the disproportionate impact of tightened lending rules on the sub-luxury market. Single family home sales between $2–4 million and over $4 million fell 31% and 32% respectively.

Affordability challenges and demographic trends pushed condominium sales over $1 million to achieve 51% year-over-year gains to 232 units sold in January and February 2018. Of these homes, 85% (198 units) were sold between $1–2 million, a segment that increased 61% year-over-year in unit sales volume compared to the first two months of 2017. During the first two months of 2018, 25 condos sold between $2–4 million compared to 26 units in January and February 2017, while sales of luxury condos over $4 million increased 80% to nine units sold. Attached home sales over $1 million also strengthened in the first two months of the year, increasing 18% year-over-year to 85 units sold and limited only by a shortage of supply to meet pent up demand.

In spite of robust economic indicators, including a Conference Board of Canada forecast that predicts B.C.’s economic growth to lead the nation at 3.1% in 2018, and unemployment rates that have plummeted to 3.9%, the housing measures introduced in February 2018 were unprecedented in scope. They are expected to disrupt market psychology as both buyers and sellers react with uncertainty, and top-tier spring market performance is expected to soften as a result.

Download the 2017 Year-End Top-Tier Real Estate Report (released January 2018)


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 Affiliates for any loss or damage resultant from any use of, reliance on, or reference to the contents of this document.

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