With the bull market in stocks looking long in the tooth, Canadians are pumping money into high-end real estate, Sotheby’s International Realty Canada says.
By high-end or “top tier” here, the company means housing worth $1-million or more, which, of course, has become the norm in centres such as Vancouver and Toronto.
Sotheby’s has seen “a noticeable increase in affluent real estate consumers utilizing top-tier real estate” as an alternative to equities so they can diversify and “buffer against financial market volatility and risk,” the company said in its bi-annual report.
“This included consumer decisions to allocate more funds towards a primary home purchase, or to invest in additional secondary home or investment properties, encouraged by persistently low mortgage rates.”
There’s also a “notable trend” among baby boomers to “consciously delay cashing out of the real estate market expressly due to concerns about the longevity of the financial market’s positive trajectory, and to ‘right-size’ into another property instead,” Sotheby’s said.
Even those who had sold their principal residence are reinvesting in the housing market, it added.
Sotheby’s expects this will continue this year. Having said that, there are no signs of the bull market ending at this point.
Nonetheless, “underlying consumer anxiety regarding financial market performance is expected to increase interest and investment in high-end real estate as an attractive tangible asset, bringing more buyers and investors into the market.”
The Sotheby’s report came as the Canadian Real Estate Association reported that home sales slipped 0.9 per cent in December from November but climbed 22.7 per cent from a year earlier.
Average prices rose 9.6 per cent from a year earlier, while the MLS home price index gained 3.4 per cent.
Notable was another drop in new listings, of 1.8 per cent in December from November.
“Listings available for purchase are now running at a 12-year low,” the real estate group said.
“The number of housing markets with a shortage of listings is on the rise; should current trends persist, fewer available listings will likely increasingly weigh on sales activity.”
Toronto-Dominion Bank economist Rishi Sondhi said he expects home sales to rise this year amid lower interest rates, gains in the labour market, strong population growth and “supportive” policies at the federal level.
“Prices should also record strong growth given tight conditions.”
Also part of the Sotheby’s report, here are its projections for four major centres:
Vancouver
“A buoyant provincial economy, populations gains that add new demand for housing, and the restoration of local consumer confidence in the housing market bode well for Vancouver’s top-tier market in the coming months. Pent-up demand from previous years’ slowdown is expected to steadily restore the market to normalized levels into the first quarter of 2020.”
Calgary
“With Alberta’s economic growth projected at 2.4 per cent for 2020 as construction on the Trans Mountain expansion project begins and as the outlook for energy investment improves, Calgary’s top-tier real estate market is expected to endure a prolonged, uneven, but determined path towards recovery into the coming year.”
Greater Toronto Area
“With demand expected to outstrip the levels of supply available in the region’s premier neighbourhoods in the first quarter of 2020, strengthening velocity and pricing are anticipated.”
Montreal
“With the outlook for economic fundamentals positive, and with robust population gains anticipated, healthy top-tier market conditions are projected for the city well into the first quarter of 2020.”
Bank of Montreal chief economist Douglas Porter agreed prices will rise, though he believes the Bank of Canada won’t cut interest rates specifically because of housing and what it means for high household debt levels.
“We expect some further upward pressure on prices in coming months, and some further upward pressure on household debt to flow from that,” he said.
“The broad-based rebound in home sales, prices, and borrowing is a key reason the Bank of Canada has remained planted on the sidelines, and why we expect them to stay there in 2020.”
And here’s an interesting aside, from the latest housing report by consulting group Knight Frank.
In the third quarter of 2019, Canada ranked as the country “with the largest gap between its strongest and weakest-performing city.”
It noted that more than 14 percentage points separated Ottawa, with a price gain of 7.1 per cent, from Vancouver, where prices slipped 7.1 per cent, as “divergent economies and property regulations take their toll.”
With a 12-month price rise of 24.1 per cent, Budapest topped the Knight Frank list. Sitting at the bottom was Jerusalem, with a loss of 13.6 per cent.
Vancouver sat sixth from the bottom of 150 cities measured, while Ottawa-Gatineau ranked No. 26.
Among other Canadian cities, Montreal ranked No. 28, with a gain of 6.3 per cent, Halifax ranked No. 31 with 5.8 per cent, Hamilton ranked No. 49 with 4.3 per cent, Toronto ranked No. 57 with 4 per cent, Winnipeg ranked No. 113 with 0.5 per cent, and Quebec City ranked No. 117 with a flat reading.
On the down side, Calgary ranked No. 129 with a price drop of 1.9 per cent, and Edmonton ranked No. 137 with a loss of 3.1 per cent.
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