The supply shortage plaguing Canada's housing markets seeped into the luxury real estate sector in Q1 2023, leading to muted sales in cities across the country.
According to the latest State of Luxury Report from Sotheby's International Realty Canada, the lack of listings has stifled what would otherwise be a healthy spring market, as buyer demand heats up.
"It's all about shortage of inventory. We're seeing that right across the country. Whether it's Victoria, Halifax, or Toronto," Don Kottick, President and CEO of Sotheby’s International Realty Canada, told STOREYS.
"Meanwhile, demand is definitely there, and intensifying. People really want to transact. But the reality is there are just not a lot of properties coming on the market. At the end of the day, we need to add more inventory to our decade-long shortage of housing."
In the Greater Toronto Area (GTA), said shortage led to a 64% year-over-year decline in sales over $4M in the first quarter, and a 57% annual drop in sales over $1M. In Q1 2023, only one home over $10M changed hands in the GTA. In Q1 2022, eight properties above the price point were sold.
In Vancouver, luxury residential sales over $4M dropped 53% year over year in Q1, while sales over $1M fell 51% annually -- a "consequence of the city's pervasive shortage of housing." Although sales over $1M were down 36% annually in Calgary, they were a staggering 223% above Q1 2020 figures due to the city's positive economic growth and record in-migration.
After finding balance towards the end of 2022, Montreal's luxury market saw sales over $4M dip 33% annually in Q1 2023, while sales over $1M declined 43% year over year.
Several factors are slowing the influx of inventory, including the foreign buyer ban, which Kottick said has created mass confusion, and bureaucracy at the municipal level, which he noted can add years to a project.
There is also concern on the part of sellers as to where they'll move next, which is creating a viscous cycle that's keeping properties off the market. Meanwhile, some sellers chose to move ahead of schedule when the market was in a frenzy, chewing up inventory that could come to market today. However, Kottick noted that people will still need to move for "life reasons," such as marriage or divorce, which will continue to be a key driver of new listings.
In fact, the number of listings has begun to creep up over the last few weeks, especially in Toronto. Should the necessary inventory materialize, Canada's luxury markets are in for a "healthy" spring.
The uptick bolsters Kottick's prediction that the coming quarter will see a resurgence of activity, as pre-qualified and antsy buyers pick up where 2022 left them. Despite the heightened demand, he doesn't expect prices to run wild -- buyers have adopted a savvy approach and are unwilling to overpay when properties aren't priced appropriately. When the price is right, though, sellers could see multiple offers.
"Coming off the frenzied period of the last couple of years, I think the market needed to pause for a bit," Kottick said.
"Now, we're going to see people that would naturally come back to the market in the spring, as well as sellers that have been waiting for this high point. We're starting to see it, and we're of the mind that this upward trend will continue."
