Resale market is expected to take off as construction costs rise
Engel & Völkers released its 2022 Mid-Year Luxury Real Estate Market Report today, featuring data from the first half of the year for homes priced $1 million and higher. Analyzing the most in-demand real estate markets in Canada — Halifax, Montréal, Ottawa, Toronto and Vancouver. The report finds markets normalizing across the country. With residential construction costs growing by 25 per cent year-over-year in 2022’s first quarter, the resale market is poised to be favourable for homebuyers and investors.
At the start of 2022’s second quarter, the Bank of Canada increased interest rates. This triggered market normalization, helping to bring more balanced conditions to Canada’s real estate markets. Sales volume decreases and a replenished inventory are causing price growth to plateau or decline. Price declines are most common in areas that saw exponential growth during COVID. However, many home values continue to increase year-over-year, though the growth rate has slowed.
While the real estate market goes through an adjustment period, many prospective homebuyers are opting to ‘wait and see’ before purchasing a home. As a result, the rental market has returned to pre-pandemic prices in the central locations of Canada’s major cities.
Engel & Völkers is forecasting that the market will continue to normalize throughout the second half of the year. It advises that now is an optimal time for prospective buyers to shop for real estate in a less competitive environment where there is room for negotiation. It also expects that once market prices stabilize, waiting buyers will return and market competition will accelerate again. This could happen as soon as this fall.
“Canada’s real estate market is returning to a steadier pace after an unprecedented growth period. While some buyers are continuing to monitor the market and the Bank of Canada’s interest rates, this provides an opportunity for eager buyers to negotiate deal terms and price on properties, unlike recent years,” says Anthony Hitt, president & CEO, Engel & Völkers Americas. “We find that interest rate increases are not as disruptive to the ultra-premium markets, as these buyers tend to purchase homes with the majority of the equity paid up front. We expect luxury markets to remain stable in Canada, as real estate remains an attractive investment.”
Halifax continues to command both domestic and international interest. Units sold in the $1 – 3.99 million range increased by 68.7 per cent year-over-year, credited to the growing value of real estate in this market. For many, working from home is the new norm and this continues to drive market activity.
Montréal’s luxury condo market continues to grow, with the average sold price in the $1 – 3.99 million range rising 14 per cent from last year. Though land supply in Montréal is finite, significant development is underway in the city, offering an influx of new inventory in the next two years.
Ottawa home sales in the $1 – 3.99 million range have doubled, accounting for 18 per cent of the market compared to nine per cent last year. The average sold price in this segment has levelled off after two years of exponential growth, indicating the return of more normalized market conditions.
Toronto experienced its first price correction in recent decades following interest rate hikes. The average sold price for condos in the $1 – 3.99 million range is up only four per cent from last year, signalling the onset of balanced market conditions.
Vancouver has three months of inventory in the $1 million-plus market, which is an indication of the market balancing. For residential class properties in the $1 – 3.99 million range, the average sold price hit an annual low of $1,958,493 in June. While the sales volume across all price categories is down, units sold is up 136 per cent year-over-year for condos priced between $1 – 3.99 million.