Pattie Lovett-Reid: From first time buyers to luxury homes, Canada's real estate market is on fire
HUNTSVILLE, ONT. -- If you need evidence that the rich are getting richer, look no further than Sotheby's luxury real estate report highlights for 2021 so far.
By way of reference, luxury real estate is typically a home that is valued within the top 10 per cent of a given market, which varies across the country. They range from detached homes to condos, located in key markets, finished with top of the line materials, and are often in close proximity to high-end amenities.
Real estate in general has been on fire so far this year, and luxury real estate is no exception.
To illustrate how hot the high-end market is, take the Greater Toronto Area (GTA) for example. Over the first two months of 2021, the GTA witnessed residential real estate sales spiking 157 per cent year over year, and of those, five ultra-luxury properties sold over $10 million compared to the same period a year ago. While luxury sales of condos priced at $4 million and above showed a decline from six to two units year over year, early signs show resiliency as the GTA's $1 million-plus market shows growth of 110 per cent year-over -year in March.
Vancouver is also seeing signs of pent-up demand with sales of luxury attached homes priced between $1-2 million and $2-4 million up year-over-year, with 169 and 15 homes sold respectively in the first two months of the year. Calgary and Montreal were not left behind with impressive gains.
WHAT IS HAPPENING?
It has been year since COVID-19 hit, driving a dramatic real estate rebound. According to Sotheby's, demand continues across multiple generations of homeowners and buyers, with a significant build up of cash accumulation, easy access to borrowing in a rock bottom interest rate environment, and pent-up local and international demand, all breathing new life into the market as a whole.
"The scenario that we are seeing with price gains and housing affordability are due to the fact that demand and supply are critically out of balance," CEO and President of Sotheby’s International Realty Canada, Don Kottick, said.
"We are facing unprecedented levels of consumer demand brought on by the pandemic and population growth, encouraged by low interest rates and pent-up cash savings. We have been in an acute shortage of housing for years in cities like Toronto and Vancouver."
With travel restrictions still in place, low rates and continued savings, there is every reason to believe this will continue into the spring.
But buyer beware.
Real estate has been a clear winner over the past year and is starting to raise serious concerns of overvaluation.
A recent poll by Nano Research indicated that 63 per cent of respondents believe the value of real estate in their neighbourhood will continue to rise. The Canada Housing and Mortgage Corporation has been ringing the alarm bells, suggesting signs of overheating at a national leveller happening. In fact, Deputy Prime Minister and Finance Minister Chrystia Freeland also recently weighed in, saying the affordability issues plaguing Canada's housing market are on the government's radar.
With the Federal Budget set to be unveiled April 19, there are whispers that we could see changes in an effort to slow things down, such as changes to the principal residence tax exemption, increased requirements for down payments, or even changes to refinancing levels.
"It’s absolutely imperative that all levels of government address the supply side of this equation, and bring new housing across the spectrum – rental, vertical, low-density– to market as quickly as possible. Trying to tackle the demand side through taxation is not getting to the root of the issue and will bring about unintended consequences," Kottick said.
"It puts the financial plans and the financial security of millions of Canadians at risk, and it also risks reducing housing supply even further, if people are discouraged from selling their homes."
One thing is certain; in many pockets across the country there is a disconnect between income and property levels, and some Bay Street economists, like David Rosenberg, fear that the Canadian housing market is in the midst of "one of the biggest bubbles of all time."
Others, like former Bank of Canada Governor Stephen Poloz, acknowledged on BNN Bloomberg that yes indeed, there's some heat, and we could see signs of speculation, "but we have to accept that because otherwise we'd have a really, really bad recession."
The question is where do you stand? And that response could differ depending on whether you are a buyer or seller.
This story has been corrected to reflect the federal budget date of April 19, 2021.