Toronto's luxury-home sector was hit hard by the market downturn in the second half of 2017 as sales of high-end detached houses slumped and the condominium sector slowed its torrid pace of growth.
A new Sotheby's report on the luxury market shows sales of homes worth more than $1-million in the Greater Toronto Area fell by 56 per cent in the second half of 2017 compared with the booming first half of the year and by 33 per cent compared to the second half of 2016.
For homes priced between $1-million and $2-million, sales fell 54 per cent in the second half of the year compared to the first half, while sales of homes worth between $2-million and $4-million tumbled 62 per cent, and home sales more than $4-million fell 48 per cent in the second half of the year.
Fewer homes typically sell in the second half of the year, but the declines in 2017 were beyond normal seasonal variations. In 2016, by comparison, sales of homes more than $1-million were 6 per cent lower in the second half of the year than the first half.
The GTA saw home sales drop at most price levels last year after the Ontario government announced a package of measures in late April to curb rapid price increases. But the luxury market was particularly hard hit due to a steep downturn in sales for detached houses, while the luxury condominium sector saw a more modest decline.
Sotheby's Canada chief executive officer Brad Henderson said many people who owned higher-end homes in the GTA last year were reluctant to put them on the market and buy elsewhere in the second half of the year because the market was weak and uncertain, which meant there was less activity from June onward.
"When homes were rising in value at a very rapid rate, more people were willing to take money off the table and perhaps move to a condominium or a lower-value home, but what we're seeing now is a little more gridlock in terms of people putting their homes on the market," he said.
Sotheby's includes all homes priced at more than $1-million in its luxury report, but that definition includes many detached homes in the GTA, which had an average selling price of $1,098,951 in 2017, according to the Toronto Real Estate Board. Condominiums sold for an average of $512,478 in the GTA in 2017.
Although sales of condominiums priced at more than $1-million fell 41 per cent in the second half of the year from an extremely high base in the first half of the year, they were still up 59 per cent in 2017 for the year as a whole.
Mr. Henderson said an increasing number of high-end buyers are choosing condominiums over other housing options, especially if they want to live in central Toronto. Some are wealthier first-time buyers, but more are also aging baby boomers who like the amenities in new buildings.
For example, some condominium buildings have guest suites for visitors, or provide event rooms where residents can host large meals, allowing boomers to downsize and still accommodate occasional visitors.
"They have changed the dynamics in terms of how you live, and how you can make your home expand to your lifestyle when you need it and contract to your lifestyle when you don't," he said.
The condominium sector was also Vancouver's strongest market in 2017, with sales of condos worth more than $1-million climbing 27 per cent during the year to a record high, the Sotheby's report showed.
However, Vancouver saw sales of detached homes priced at more than $1-million fall by 20 per cent from 2016 levels. The result was an overall 5-per-cent drop in sales of all home types priced at more than $1-million in 2017 compared to 2016.
Vancouver's market was most volatile for homes priced at more than $4-million, where sales fell 33 per cent in 2017, which Mr. Henderson said was in part owing to an unwillingness on the part of sellers to lower their prices to make a sale.
"In Vancouver, what we have seen is that there's a fairly strong disconnect between what buyers are willing to pay and what sellers are willing to offer," he said. "That's creating a little more gridlock because the sellers are not in a position where they have to sell, so if they're not able to get the price they think their home is worth they retreat from the market."
Mr. Henderson believes both Vancouver and the GTA will see luxury-home sales grow in 2018 after sales picked up in the latter part of 2017. He said expected strong economic growth will spur sales in both markets as they shake off the impact of regulatory changes.
"We're still bullish on Toronto and Vancouver because the fundamentals are so strong," he said.
Montreal saw a boom in sales of homes priced at more than $1-million in 2017, with luxury sales climbing 20 per cent over 2016. High-end condominiums were the strongest market segment, with sales climbing 49 per cent compared to 2016.
Calgary also saw sales of high-end homes climb 11 per cent in 2017 as the market recovered from a weak sales base in 2016.