Spring 2018 Market Forecast

The Usman Group - March 4, 2020

Source: Sotheby's International Realty Canada, Brokerage

Montreal is projected to lead Canadian luxury real estate in market performance in spring 2018, as strong economic fundamentals and soaring consumer confidence drive demand and elevate prices in the market for homes over $1 million. New data compiled by Sotheby’s International Realty Canada for the preliminary months of 2018 also suggest continued recovery in top-tier real estate in Calgary, where January and February sales over $1 million rose 45% year-over-year. 

Almost one year after the introduction of Ontario’s Fair Housing Plan, top-tier market activity in the Greater Toronto Area is projected to steady at healthy levels this spring; while $1 million-plus unit sales are projected to fall short of 2017’s record highs, the condominium sector is expected to buoy market performance with steady gains. The gap in performance between Vancouver’s $1 million-plus detached and condominium markets is also set to widen this spring. Uncertainty introduced by the British Columbia government’s new demand-side taxes and policies are expected to diminish activity in the detached home segment, while spring condominium activity is expected to maintain the momentum experienced in the first two months of 2018, which saw sales volume spike 51% year-over-year.

“Montreal has been Canada’s ‘dark horse’ in luxury real estate. For many years, political uncertainty and a stagnant economy tethered performance, but those factors have now dissipated,” says Brad Henderson, President & CEO of Sotheby’s International Realty Canada. “This spring, we expect strong gains that will set new records for the city.”

According to Henderson, Calgary is expected to see an uptick in high-end sales activity as homebuyers and sellers emerge from a prolonged stalemate over pricing expectations to re-engage in the current market reality. Meanwhile, Canada’s two largest metropolitan centres will grapple challenges. 

“Rising prices and the lack of affordable options is continuing to pressure the Toronto and Vancouver markets. Consumers are deadlocked in their ability to buy and move – their diminishing willingness to transact is slowing activity,” says Henderson. “In Vancouver, the new housing measures introduced in February cast confusion and uncertainty into the consumer mindset. While demographic trends and housing needs will support the top-tier condominium market, disruption in the overall real estate market is inevitable.”


1. Canada’s top-tier real estate market continues to be anchored by solid local and national economic fundamentals. Robust economic growth in 2017, which saw real GDP increase by an estimated 3% according to the Bank of Canada, is expected to moderate to a more sustainable 2.2% in 2018. The International Monetary Fund projects that among the G7 countries, Canada (and Germany) will have the second-strongest growth rates at 2.3%, trailing only the U.S. Falling unemployment rates in Canada’s largest metropolitan areas have also strengthened the top-tier real estate market. The national unemployment rate slipped to 5.8% in February 2018, matching its lowest level since Statistics Canada started measuring it in 1976. While unemployment rates in Calgary and Montreal remained above the national average at 7.7% and 6.1% respectively, both fell from the same time last year. Meanwhile, unemployment rates dipped to 5.5% and 3.9% in Toronto and Vancouver respectively, bolstering demand for conventional and top-tier real estate. 

Over the past two years, municipal, provincial and federal governments have introduced unprecedented and untested policy changes in an effort to curb runaway prices and address affordability in major metropolitan areas. Changes to date have provoked consumer hesitation in certain top-tier housing segments and markets, while redirecting demand to others. The B.C. Government’s 30-point plan for housing affordability hiked the 15% foreign home buyers to 20% and expanded its footprint beyond Metro Vancouver to the Fraser Valley, Victoria, Nanaimo and Kelowna, increased the Property Transfer Tax from 3% to 5% on the portion of fair market value greater than $3 million, and introduced a new speculation tax of 0.5% of taxable assessed value for the 2018 tax year and 2% thereafter. These measures are expected to increase consumer hesitation in Vancouver’s top-tier detached home market this spring, but will have a less significant effect on the city’s robust condominium market. One year following the introduction of Ontario’s Fair Housing Plan, consumer psychology in the top-tier segment of the Greater Toronto Area has recovered more rapidly than the conventional market. While spring 2018 activity will fall short of 2017’s record-breaking levels, demand is expected to strengthen over the course of 2018. To date, neither the Calgary nor the Montreal top-tier markets have seen a significant surge in new demand resulting from the implementation of these measures in other metropolitan markets. Further, in spite of speculation, neither province has indicated plans to implement similar measures this spring.  

2. Higher borrowing costs and the Office of the Superintendent of Financial Institutions (OSFI) newly mandated mortgage stress test guidelines, which now require the minimum qualifying rate for uninsured mortgages to be the greater of the five-year Bank of Canada benchmark or 200 basis points above the mortgage holder’s contractual mortgage rate, are not expected to impact the luxury real estate market in the spring of 2018 to the same degree that it is projected to influence the conventional and sub-luxury top-tier segments. While the gradual uptick in interest rates and tighter lending guidelines will constrict the real purchasing power of those buying conventional primary homes, this is not the case for luxury real estate consumers, who are more likely to utilize mortgages as a strategic instrument rather than out of necessity. As a result, the impact of these measures on the high-end market is expected to be nominal.  

3. Although a build-up of global financial, political and economic vulnerabilities are casting shadows on Canada’s top-tier real estate market in the medium term, they are not anticipated to have an impact on the spring market. Risks of a financial market correction, protectionist trade barriers, uncertain outcomes in the renegotiations of NAFTA, as well as geopolitical tensions in the U.S., Asia and the Middle East, will be superseded by the more direct effects of housing policy, local inventory levels, regional economic and job indicators, and consumer confidence. These local forces will remain the predominant influences on top-tier market performance this spring.

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