The top-tier housing markets in Toronto and Vancouver are headed in opposite directions, with fear driving Vancouver's market lower even as optimism returns to Toronto's market, according to Sotheby's International Realty Canada.
The real estate agency released a new report Tuesday looking at the $1 million-plus segment of the housing market. In earlier eras, we could have called this the "luxury" housing market, but with the benchmark price of a detached home at $1.6 million in Vancouver, and just above $1 million in Greater Toronto, this is now just the pricier end of the "regular" housing market.
Sales of $1 million-plus homes in Greater Vancouver tumbled 19 per cent in the first half of 2018, compared to a year earlier — when they were already down from the year before that. Detached home sales hit a 27-year low this spring, according to numbers from the region's real estate board.
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Sotheby's Canada CEO Brad Henderson said a perfect storm of new government regulations — from a foreign buyers' tax, to tough new mortgage "stress tests," to Vancouver's new vacant home tax — has made people apprehensive about the housing market.
"That has been a considerable amount of body blows to the confidence ... around real estate," he told HuffPost Canada by phone.
It's not fading interest from foreign buyers that's dragging down the market, Henderson said. "What's dragging down the market is people's fear that these (new government regulations) are going to further dampen the marketplace."
Henderson believes the second half of the year will be equally as sluggish in Vancouver's market, or even "potentially slower."
Toronto, land of eternal optimism
Not so for Toronto, where "there is a much healthier view of the market and much healthier view of the future," Henderson said.
The city has much more holding up its market than Vancouver does, Henderson noted: "It's a much bigger source of higher-paying jobs, knowledge economy jobs. It's the financial capital of Canada."
To be sure, Toronto's numbers look dismal compared to last year. Sales of million-plus homes are down a whopping 46 per cent in the first half of this year, from the same period last year.
Earlier on HuffPost Canada:
But that's not a good comparison, Henderson says, because last year marked the peak of the city's housing "buying frenzy," fuelled by a fear of missing out.
"You could argue that that was an anomaly, and it likely won't be repeated," Henderson said.
Compared to a more "normal" year, like 2015, sales above $1 million are up by 25 per cent in Toronto, and sales in the $4-million category, which still count as "luxury" even today, are up by 72 per cent.
In the second half of this year, "we will see an increase in activity in Toronto, more people returning to marketplace, more upward pressure on prices," Henderson predicted.
Homebuyers could find themselves under a bit more financial pressure after Wednesday, when the Bank of Canada is expected to hike its key lending rate for the fourth time in a year. The rates on variable mortgages and home-equity lines of credit typically rise when the BoC hikes its rate.
"That will do an effective job of keeping people from getting irrationally exuberant," Henderson said.
The Sotheby's report also looked at two other top-tier housing markets, Calgary and Montreal. Here are its findings, in brief:
Montreal
Of the four cities Sotheby's looked at, Montreal is the only to have seen sales of million-plus homes rise in the past year — up 25 per cent in the past year, a much stronger showing than average.
"The market has been driven by strong local demand, and has been undeterred by rising interest rates and new mortgage rules," Sotheby's said in its report.
That may have something to do with the record-low unemployment rates Quebec has seen in recent months, as well as growing interest from non-Canadian buyers in the wake of foreign buyers' taxes in Toronto and Vancouver.
Montreal "has always been in the shadow of Toronto and Vancouver, but it has come out as a bright spot in the last little while," Henderson said.
Calgary
Sales of million-plus homes fell by 11 per cent in the first half of this year, compared to the same period last year, when the city's housing market seemed to be recovering from the oil price crash.
But that was "premature optimism," Henderson said, "and now, because the oil slump has dragged on for so long ... it is still not translating into more people looking for homes."
"We are going to see continued downward pressure on prices and sales" in Calgary, he predicted.
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