Maison 77 Clarendon is a boutique condo building in Toronto’s prestigious South Forest Hill. A general lack of inventory is pushing the real estate market “to suddenly become very frothy,” says realtor Janice Fox.IMAGE COURTESY OF MENKES DEVELOPMENTS LTD.
The luxury real estate market in the Greater Toronto Area (GTA) this spring and heading into the summer is one of mismatched demand and supply.
According to a recent Sotheby’s International Realty Canada’s Top-Tier Real Estate Spring 2023 State of Luxury Report, a scarcity of luxury listings contributed to a 64-per-cent year-over-year decline in Greater Toronto Area sales of over $4-million in the first quarter of 2023. That’s delaying market engagement among frustrated buyers, who paused their activity in 2022 but are now renewing their searches. Sellers are dissuaded from listing their properties due to concerns about a lack of housing alternatives.
“Earlier in the year, Sotheby’s International Realty Canada predicted a ‘high-pressure spring’ for the Canadian real estate market, and this is precisely what is now trending in the Greater Toronto Area,” says Don Kottick, president and chief executive officer of Sotheby’s International Realty Canada.
“Over the past few months, we have seen a revitalized and new cohort of luxury home buyers re-enter the market to search for a home that matches their needs and lifestyle. The greatest challenge has been that property listings remain scarce. This is leading to stiff competition for available properties, with prices stabilizing, or in some cases, improving in top-tier neighbourhoods.”
In the first quarter of the year, one property sold for more than $10-million, compared with eight ultra-luxury residences that sold above this price in the same period in 2022. Overall residential sales over $1-million were down 57 per cent year-over-year in the GTA.
“That general lack of inventory is pushing the market to suddenly become very frothy,” says Janice Fox, broker of record at Hazelton Real Estate Inc., which is marketing Menkes Developments Ltd.’s boutique condo Maison 77 Clarendon. “We were sitting tight [with rising interest rates] and then suddenly the warm weather came and spring bloomed in the real estate market. Lack of inventory is prompting multiple offers again.”
Fox points to one sale – an entry-level condo priced at $750,000 that received 35 offers and sold for more than $1-million – as a sign of where the market is heading, as the luxury end is usually the slowest to hop on.
“It’s generally a trickle-up effect,” she says. “The lack of inventory is even worse at that level because it’s never about shelter with them. It’s an arbitrary buy and sell, so unless there’s some wind at their back to sell the property they are happy to sit on it and wait it out.”
Luxury for Fox starts at the $4-million price point, so one factor driving decision-making is the portion of the market that is selling something at a lower price point and moving up to that higher price point, as well as the impact that higher mortgage rates have on monthly costs, especially for those who have an existing mortgage.
“People might be property rich but it doesn’t mean they are cash rich,” she adds. That may slow the luxury market for those who are buying up.
The people on the other end of the spectrum, such as downsizers looking to sell a house they’ve been in for decades for maybe $4-million to $5-million and buy a high-end condo, might be in for sticker shock.
Those wanting to move into a luxury condo at 2,000 square feet or larger are no longer looking at paying $4-million, but possibly $5-million or $6-million.
“I think they’re struggling with that,” Fox says.
The luxury market usually starts to get quiet by the end of June and picks up again at Labour Day and runs through the end of November. “I think it’s going to be quite bubbly this coming fall,” Fox says.
Kottick says the issue of high demand and limited supply is a long-term issue in the market.
“The dominant influences on the GTA’s luxury real estate market are, firstly, its decades-long deficit of housing supply across every segment of the market, and, secondly, pent-up local demand amplified by new demand in the form of in-migration and immigration on its way. These are fundamental influences that will shape the market not only into the summer and fall, but for years to come,” he says.
“The reality is that despite any short-term market adjustments ahead, the GTA is going to continue to see a highly competitive luxury real estate market into the latter half of the year – and in the years ahead.”
Kottick points to a recent survey his company did with Mustel Group across Canada’s four largest metropolitan areas indicating that real estate confidence remains strong – 49 per cent of Canadians between the ages of 18 and 77 years expect that a home or residential real estate purchase will perform the same or better than their other financial investments in 2023.
The survey also indicated that 60 per cent believe that real estate will outperform or match their financial investments in the next decade.
Michael Kalles, president of Harvey Kalles Real Estate Ltd., points to a State of Luxury Real Estate white paper just released by Luxury Portfolio International, with findings that mirror what is happening in Toronto.
Younger luxury homeowners becoming a bigger part of the market are a part of that, Kalles says, increasingly focusing on sustainability and social responsibility, and increasingly aware of the value of real estate as a long-term, appreciable asset.
“As it relates specifically to sales volume, it depends how you define luxury,” he says. “If we look at price, the sale of luxury homes is accounting for a smaller share of total sales than they did in the early months of 2022.”
Kalles reports that, in April, 7.25 per cent of sales transactions were over $2-million. That stat was more than 10 per cent a year earlier. This April, there were fewer than 25 sales over $5-million. So far, that’s risen to 40 sales in May.
“We are seeing more interest in ultra-luxury homes than we saw in the first quarter of 2023, when fewer than 35 homes sold for over $5-million on the MLS,” he says, “but this will always account for a small portion of the overall market.”
What does Kalles expect to see this fall?
“It’s tough to project and none of us have a crystal ball,” he says. “That said, with inventory being so low – there was approximately 1.4 months of inventory at end of April – sales are accounting for a greater share of new listings and that will generally put upward pressure on home prices.
“Personally, I’m less interested in rising prices than I am in total sales. But sometimes you need higher prices to get sellers to engage in the market. So, I’m hopeful that rising prices will bring more homes to market and buyers will have better choice as they look for the right home that meets their needs and budget in their preferred neighbourhood.”
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