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Canadians Used Luxury Housing to Hedge Inflation in Q1: Sotheby’s

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Luxury real estate purchasers are largely insulated from ballooning inflation and increasing interest rates, but that only made their pursuit of extravagant housing more dogged as hedge investments last quarter, according to a new report from Sotheby’s International Realty Canada.

The GTA Had a Voracious Appetite for Luxury Homes

In the GTA, luxury residential sales over $4M of all housing types increased by 30% year over year from Q1-2021. Bidding wars were commonplace in the luxury segment, naturally driving prices up as robust consumer confidence was reflected in through-the-roof demand, which managed to top the frenetic pace of Q1-2021. Ultra-luxury single-detached home sales, which are priced at $10M and up, declined to seven from nine last year — a marginal decline in what is nevertheless a very slow-moving segment of the market — however, the $1M-plus segment saw sales increase by 11% to 15,209 in Q1.

In the City of Toronto, luxury sales over $4M rose by 29% year-over-year in Q1 to 129, while there was only one ultra-luxury of over $10M, the latter down from six during the first quarter of 2021, transactions above $1M in the 416 only increased by 10% year-over-year to 4,388. 

Sotheby’s report concluded that domestic purchasers in Canada’s largest metropolitan region were driven by domestic buyers during the first quarter of this year, which is hardly surprising in light of how much equity homeowners have accrued in recent years, especially the last two, as rock-bottom interest rates have resulted in a red-hot market. Moreover, local buyers, many of whom are investors, have been using real estate to offset inflation. For example, in the $1M-plus segment of the condo market, sales surged by 120% in the GTA and by 72% in the city of Toronto. In the $4M-plus category, sales shot up by 160% year-over-year in Q1, although that only amounted to 13 transacted units, but there were zero sales for condo sales in the ultra-luxury category.

The GTA’s detached market in the $4M-plus category was very active last quarter, with the 222 sales rising by 24% over 2021 levels, while $1M-plus home sales declined by 10% to 9,893—most likely a consequence of dwindling listings on the resale market.

In the City of Toronto, single-family homes sales over $4M rose by 17% year-over-year in Q1 to 112, and in the ultra-luxury category, there was only one sale, down from six in Q1-2021. Sales for homes priced $1M and over declined by 6% to 2,376.

Montreal’s Luxury Market Balanced in Q1

After a rapid pace of sales activity during the first quarter of last year, balanced conditions returned to Montreal’s upper-tier housing market, Sotheby’s report noted. Quebec’s economy is robust — there were 82,000 new jobs created in February, up by only 1.9% month-over-month. In Montreal, employment rose by 1.6% during that time to 37,000.

Naturally, demand for luxury real estate was high, especially in the single-family segment of the market, but inventory didn’t keep up. Consequently, sales for detached homes that were at least $1M decreased by 11% year-over-year during Q1-2022 in Montreal to 163, but in the $4M-plus segment of the market, transactions surged by 50% to six, while there were none ultra-luxury sales. The Quebec Professional Association of Real Estate Brokers reported that single-family home prices in the city increased by 26% year-over-year last quarter to $550,000, despite tight inventory—active listings dropped by 6% to 3,847 during the period.

Vancouver’s Exorbitant Prices Didn’t Dissuade Buyers

The City of Vancouver’s struggles with rapidly rising housing prices didn’t dissipate during the first quarter of the year because demand remained elevated. Moreover, of Canada’s four largest cities, Vancouver suffered the fewest job losses last year, and that continued into 2022. Vancouver’s unemployment rate was, at 5.4% in February, below the national average.

Of all homes priced over a million dollars, Vancouver’s condo market was the most active. Sales for homes priced at least $4M grew by 8% year-over-year to 14 units during the first quarter of this year, and although there were no ultra-luxury sales, transactions in the $1M-plus category rose by 29% to 559 units, comprising 38% of all luxury sales during the quarter.

Sotheby’s expects the strong activity in the city’s condo market to continue through the spring, especially because single-family homes in the city are becoming financially prohibitive.

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