2018 Fall Market Forecast

Strengthening consumer engagement and robust economic fundamentals in the nation’s largest housing market are projected to drive Canadian top-tier real estate performance this fall, as sales over $1 million rebound in Toronto. New data compiled by Sotheby’s International Realty Canada reveal that Greater Toronto Area residential real estate activity over $1 million and luxury activity over $4 million are gaining traction, as summer sales rose 19% and 34% year-over-year respectively.

In contrast, activity and pricing in Vancouver’s top-tier real estate market are poised to decelerate as the market responds to rising interest rates and the cooling effects of recent housing taxes and policies. Activity across the city’s single family and previously resilient attached and condominium markets diminished over the summer, resulting in a 24% decline in sales over $1 million, and a 33% decline in luxury sales over $4 million. Montreal’s $1 million-plus real estate sales increased 19% year-over-year in July and August, and the city remains well positioned to set new records to the end of 2018. Top-tier market performance in Calgary remains volatile: following an 11% drop in sales over $1 million in the first half of 2018, sales increased 9% year-over-year in July and August of 2018, however, the risk of a surge in additional inventory remains.

“Toronto’s top-tier real estate market is positioned for a turnaround this fall. Since the introduction of Ontario’s Fair Housing Plan in April 2017, the market has maintained ground in spite of rapid policy changes, as well as rising mortgage rates and tighter lending guidelines. Market psychology has now adjusted and we expect the fall market to be more active,” says Brad Henderson, President & CEO, Sotheby’s International Realty Canada. “In contrast, high-end sales and prices are softening in Vancouver, not only in the single family home segment, but across the city’s heated condominium and attached home markets. In the upcoming fall market, it will be buyers and investors who will hold the upper hand.”

According to Henderson, recovery in Calgary’s top-tier real estate market has remained unsettled, in parallel to the city’s economic progress, while luxury sales in Montreal are projected to end the year on a positive note.

Key National Influencers:

• Canada’s economy expanded at a robust pace of 2.9% in the second quarter of 2018 following a weak start of the year, according to the Conference Board of Canada. While economic growth is expected to slow in the third quarter of the year, it remains strong enough to warrant a gradual reduction in monetary stimulus, according to the Bank of Canada in a statement that accompanied its decision to hold its key rate at 1.5% in September. Solid national economic fundamentals bode well for Canada’s top-tier real estate markets this fall, elevating high performance markets such as Toronto and Montreal, while buffering consumer confidence in markets such as Vancouver and Calgary that are encountering local headwinds.

• Although the Bank of Canada maintained its key rate at 1.5% in September, it has signaled the potential for another rate hike in October 2018 given solidifying economic conditions.  The gradual and incremental rise in lending rates will affect consumer purchasing power in the conventional housing segment; however, the impact on luxury homebuyers remains less significant.

• The national unemployment rate, as well as the unemployment rate in the key metropolitan areas of Montreal, Toronto and Vancouver, continue to hover at decade- lows, anchoring conventional and top-tier real estate market performance with concurrent job gains that retain and attract new residents. Canada’s unemployment rate hovered at 6.0% in August 2018, while Montreal and Toronto’s unemployment rates of 6.0% and 6.1% remained on par with the national average. Vancouver’s unemployment rate of 4.7% remained the lowest of the country’s largest metropolitan areas.  While Calgary’s unemployment rate fell to 8.0% and then below from April to July, it rose to 8.2% in August. Weak wage gains and the faltering recovery of jobs in Calgary’s oil and gas sector continue to undermine recovery in the city’s top-tier real estate market.

• The implementation of the new mortgage stress test by the Office of the Superintendent of Financial Institutions (OSFI) earlier in 2018 weighed on the conventional real estate market earlier in 2018, however, its impact was less pronounced across the majority of Canada’s major luxury real estate markets. While stricter lending guidelines continue to constrain the renewal of Calgary’s top-tier market, its repercussions have largely evaporated from Montreal, Toronto and Vancouver, where local market influences now take greater precedent.

• Housing affordability remains a critical influencer in the top-tier markets of Vancouver and Toronto real estate. With single family home benchmark prices at $1.53 million in Vancouver East and $3.28 million in Vancouver West, and averaging $1.24 million in the City of Toronto (August 2018), rechanneled consumer demand into the condominium and attached home sector have elevated prices. In spite of slackening sales and prices across the Vancouver market, the elevated cost of housing in both cities is limiting consumer mobility and activity, as prospective home sellers disengage from the market due to their lack of viable housing alternatives.

Montréal:

Montreal was the only major Canadian city to record year-over-year gains in residential real estate sales volume over $1 million in the first half of 2018, with a 24% increase that shattered previous records. The city’s luxury market is positioned to accelerate this fall to the end of the year as July, August and preliminary September sales data signal continuing consumer demand.

July and August residential real estate sales over $1 million increased 19% over the same months in 2017 to 137 properties (condominiums, attached and single family homes) sold. During this period, the city’s luxury condominium market experienced a 93% year-over-year surge to 27 units sold over $1 million, outpacing industry expectations and positioning the sector for additional gains in pricing and velocity this fall. Detached and attached home sales over $1 million also trended upwards with a 9% year-over-year gain to 110 properties sold in July and August, even as sales activity was limited by a shortage of available inventory in top-tier neighbourhoods.

Initial sales figures for the first half of September reflected an 8% year-over-year gain in overall residential real estate sales over $1 million to 26 units sold in the first 15 days of the month.

Although the outcome of Quebec’s October 1 election remains uncertain, the dormancy of the province’s sovereignty issue bodes well for continuing economic growth, population gains, and local consumer confidence – drivers of a strong top-tier real estate market. As a result, Montreal remains well positioned to attain new levels of top-tier market performance by the end of the year.

Greater Toronto Area (GTA):

The top-tier real estate market in the Greater Toronto Area (Durham, Halton, Peel, Toronto and York) is poised to rebound this fall as consumer confidence rallies. Apprehension following the introduction of the Ontario Fair Housing Plan in April 2017 and the tightening of mortgage lending rules and rising rates earlier in 2018 have dissipated; pent up consumer demand coupled with renewed top-tier listing activity is expected to propel gains in sales, velocity and pricing across all housing segments to the end of 2018.

In spite of seasonal tendencies for real estate activity to slow over the summer, top-tier sales activity strengthened this July and August, reflecting a shift towards renewed seller, buyer and investor engagement, and a transition into an active fall market.

July and August sales volume over $1 million (condominiums, attached and single family homes) increased 19% year-over-year to 2,296 GTA properties sold, while luxury sales over $4 million increased 34% to 47 units sold. Summer sales over $1 million and $4 million in the City of Toronto rose 13% and 52% year-over-year, to 897 units and 35 properties during this time.

The high-end condominium market saw the most pronounced gains in sales activity over the summer months, anticipating a strong fall. Sales over $1 million increased 28% and 21% in the GTA and City of Toronto respectively to 199 and 170 condominiums sold. Four condominiums sold over $4 million in the GTA, all in the City of Toronto, on par with sales in the previous year. Changing demographics and consumer preferences favouring urban lifestyles continue to motivate the migration of real estate consumers and investors into condominiums in the city’s central core, bolstering the market with healthy local demand. 

Sales of single family homes over $1 million rose 20% year-over-year in the GTA and 12% in the City of Toronto to 1,916 and 580 units respectively; however, summer activity remained capped by a shortage of available listings on the market particularly in the $1 million to $2.5 million segment. Luxury home sales over $4 million also experienced strong year-over-year gains with sales up 35% to 42 units in the GTA and up 50% to 30 units in the City of Toronto. Attached home sales over $1 million experienced 6% and 8% year-over-year gains in the GTA and the City of Toronto respectively, to 181 units and 147 units sold.   

While initial numbers for the first half of September reflected 378 residential sales (condominiums, attached and single family homes) over $1 million in the GTA compared to 503 properties sold between September 1 to 15, 2017, activity is set to gain momentum as the fall market progresses. According to Sotheby’s International Realty Canada, healthy levels of fresh inventory have been introduced into the market and buyer activity is brisk.   With Ontario’s economy projected to advance by a moderate 2.2% according to the Conference Board of Canada, consumer confidence and strong economic fundamentals are expected to anchor top-tier market health to the end of the year.

Calgary:

Following a contraction in $1 million-real estate sales in the first half of 2018, the City of Calgary’s top-tier real estate market is confronting new economic headwinds that threaten its recovery this fall. In recent months, industry and consumer confidence have faltered in light of the city’s rising unemployment rate, which rose to 8.2% in August 2018.  A pullback in Western Canadian heavy oil prices, the setback for Trans Mountain pipeline construction following the Federal Court of Appeals’ August 2018 decision to overturn its permits, and an overall decline in capital spending in the city’s primary industries have dampened consumer confidence. With rising mortgage rates and tightened qualification guidelines, increases in top-tier condominium, attached and single family home supply and downward price adjustments are projected for the fall, and $1 million-plus sales activity is anticipated to be inconsistent.

Year-to-date top-tier real estate sales trends reflect market fragility, and underscore the forecast for unpredictable fall market performance. Following an 11% decline in $1 million-plus real estate sales (condominium, attached homes and single family homes) in the first six months of 2018, sales increased 9% year-over-year to 122 homes sold in July and August of 2018. Detached home sales over $1 million comprised the majority of transactions, and increased 15% year-over-year to 109 units sold in 2018.  Calgary’s luxury condominium market remained quiet, with three units sold over $1 million in the summer compared to two in July and August of 2017.

Preliminary sales data from the first 15 days of September reflected 21 sales over $1 million compared to 18 during the same period in 2017.

While an entrenched buyers’ market is forecast for Calgary’s top-tier market this fall, Sotheby’s International Realty Canada industry experts caution that pending inventory will be the deciding factor in fall market conditions and housing values. There is a mounting risk that rising supply will place downward pressure on prices this fall.  

Vancouver:

Vancouver’s top-tier real estate market is set to decelerate this fall, as residential sales activity and housing prices continue their retreat from recent years’ highs.  Following a 19% year-over-year contraction in sales over $1 million (condominiums, attached and single family homes) to 1,939 units sold in the first half of 2018, $1 million-plus sales in the City of Vancouver registered a steeper decline over the summer months, darkening the forecast for fall performance.

453 properties (condominiums, attached and single family homes) sold over $1 million over July and August, down 24% compared to the same months in 2017, while luxury real estate sales over $4 million fell 33% to 31 units sold.  This slowdown was largely attributed to diminishing buyer engagement in the market, as anticipation of rising listings inventory and strengthening negotiating power resulted in lengthy or delayed purchasing decisions. Home prices across the top-tier market edged downwards, as motivated sellers withdrew from previous price expectations and adjusted pricing to buyers’ market conditions.

All segments of the top-tier market experienced notable declines in sales activity: sales of single family homes over $1 million dropped 27% from the previous summer to 213 units sold, while luxury sales over $4 million fell 38% to 24 properties sold.

The top-tier condominium market, which had remained resilient in the first half of 2018 with 9% year-over-year gains to 708 units sold over $1 million, waned over the summer months. Condominiums over $1 million saw sales volume fall 21% in July and August to 162 units sold. Five condo sales took place over $4 million, unchanged from 2017 levels. Attached home sales, which had remained stable with a nominal 3% decline in the first six months of 2018 to 346 homes sold, also slowed as summer sales fell 21% to 78 homes sold.

This downward trend persisted throughout the first two weeks of September. Preliminary numbers reveal that overall residential real estate sales over $1 million fell 66% year-over-year to 55 units sold from September 1 to 15. One unit sold over $4 million during this period, compared to 11 properties sold over the same period in 2017.

With new listings inventory being added to the market and cooling demand, Vancouver’s top-tier market will entrench in favour of buyers to the end of the year.