Despite rising interest rates and economic uncertainty, the Canadian luxury real estate market continues to be robust through the first part of 2023, according to a new report from Engel & Völkers.
The luxury market includes properties priced at $1 million and above. The mid-year 2023 Canadian Luxury Real Estate Market Report examines the cities most in-demand with premium real estate: Halifax, Montreal, Ottawa, Toronto and Vancouver.
Available stock in this price point is shrinking, while demand continues to be steady. Owners of properties priced over $1 million are increasingly staying put, creating gridlock on the property ladder, and putting pressure on what supply is there.
“Premium markets are proving their resiliency to market fluctuations, showing steady growth and stability. This is in part due to sellers holding off on listing properties while real estate markets return to typical seasonal patterns,” says Anthony Hitt, president and CEO, Engel & Völkers Americas.
With a lack of suitable housing for sale to meet their wish lists and sky-high rental rates, Baby boomers are electing to stay in properties for longer. Similarly, real estate is increasingly becoming the investment of choice for the transfer of generational wealth, further restricting supply.
Meanwhile, with population growth ramping up, demand is steady. While rising interest rates have taken a bite out of budgets for buyers in lower price points, luxury home buyers are less affected by higher borrowing costs, as many have amassed equity, already on the upper rungs of the property ladder.
“Quality inventory on the market has sold quickly, with homes commanding multiple offers, despite the current climate. Interest rate changes have had negligible effects on premium markets because buyers tend to pay a large portion of home equity up front,” says Hitt.
Looking at regional markets, in Halifax the market share for single-family luxury homes rose to 10 percent through mid-year 2023, up from 4.6 percent for all of 2022. Nova Scotia remains a big draw for remote workers, drawn by the maritime lifestyle. Collaborative efforts from local industry and government to draw workers from other large cities are proving fruitful as well, in part accounting for the increase in luxury homes in Halifax.
Meanwhile, average home prices in Montreal have grown substantially, with home values in the Westmount and Outremont neighbourhoods rising by almost $1 million in the last decade. Many of these buyers made long-term purchases, so it is unlikely that these homes will return to market in the near future, which may exacerbate the supply/demand cycle for luxury homes in Montreal.
The number of luxury homes priced between $1 – 3.99 million grew by 3 percent between January and June 2023 in Ottawa, with projections for continued growth in the near term. While property prices have trended downward in Ottawa in the rising interest rate environment, luxury home prices have risen, with homes in the $1.5 to $2.5 million price point most sought after.
Selling prices climbed in Toronto in the first half of 2023, pushed along by low supply in both the property and rental markets. Prices in the $1 – 3.99 million segment were up by 3.7 percent in June, compared to January 2023, signalling that the market has likely absorbed the shock from prior interest rate increases.
While prices have softened in Vancouver in the luxury market, the decline was moderate, suggesting the overall health of that market. Average home prices in the $1 – 3.99 million segment have fallen by only 5.59 percent from the market peak in February 2022. Supply is lagging demand in the luxury market, creating multiple offers and putting upwards pressure on prices.
