Uncertainty sweeping through major financial markets doesn’t bode well for luxury property values in Canada’s biggest markets this year after top-tier segments took a hammering in 2018, a new report from Sotheby’s International Realty suggests.
“The volatility of financial markets introduces real and perceived headline risks that may shock the market and stall consumer action,” reads the 2018 Year End Top Tier Real Estate Report from Sotheby’s.
“In 2019, ongoing stock market volatility will shadow top-tier housing performance as unsettled local and global real estate consumers hesitate from making key financial decisions, including those related to purchasing and selling a home,” the report continues.
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The report notes how the impacts of financial market uncertainty on luxury real estate in Canada are already visible. In particular, the Dow Jones Industrial Average, S&P 500 Index, NASDAQ Composite Index and other key indicators have been roiled with wild declines in the wake of the U.S.–China trade war, which has been heating up.
These issues were one of many setbacks that faced well-heeled homebuyers and sellers over the past year. Other factors included federal mortgage stress testing introduced in the beginning of 2018 and steadily rising interest rates on the shoulders of several Bank of Canada hikes to the overnight rate.
However, not all markets were impacted equally. “Toronto’s top-tier real estate market emerged as a bastion of resilience, due in large part to the region’s stable economy and rapidly expanding population,” says Brad Henderson, president and CEO of Sotheby’s International Realty Canada, in a statement.
“Consumer psychology bounced back from temporary setbacks brought on by policy changes, rising rates and tighter lending guidelines,” he adds.
Nonetheless, in the luxury segment of homes priced above $4 million, sales were down 40 percent in the Greater Toronto Area.
In Montreal, just 11 transactions were recorded on the resale market in this price range, compared to 12 in 2017. “In a city that boasted population gains as well as Canada’s fastest growing metropolitan economy, top-tier real estate activity continued to be driven by local housing demand,” the report reads.
Vancouver was subject to additional headwinds from region-specific policies, including the provincial government’s decision to increase the foreign-homebuyer tax for Metro Vancouver to 20 percent, up from 15 percent. Luxury home sales in the $4-million-plus range plunged 49 percent.
Meantime, the Calgary market was uniquely impacted by job losses in the oil sector. Just a single home sold for more than $4 million last year, matching 2017’s lone sale in this category. “While long-term investment opportunities exist, many remain wary of the city’s current market conditions,” the report says.