Market Commentary | Summer 2022

By Barry Cohen

Luxury home sales have outperformed the overall market to date, but rising interest rates will impact homebuying activity in the months ahead

What a difference a few months make!

While luxury home sales are still outperforming the overall market, and year-to-date values are ahead of year ago levels for the same period, rising interest rates and economic concerns have taken some wind out of the sails of the Greater Toronto Area (GTA) housing market.

The softening in the market, characterized by an increase in inventory, a plateau in housing values, and less urgency overall, has given buyers the chance to catch their breath, while sellers are busy adjusting to new market realities. Luxury sales are still ahead of last year’s white hot high-end market, but the percentage increases year-over-year are shrinking, especially at higher price points.

To date, there have been almost 5,000 freehold and condominium sales over $2 million in the GTA, an increase of close to four per cent over the first seven months of 2021. The number of homes that have changed hands over the $3M, $5M, $7.5M and $10 million price points have fallen short of year-ago levels for the same period. However, these levels do not take into account in increase in off-market sales which are substantially up during these covid years.

Lack of inventory remains a challenge at the top end of the market, particularly in the central core, as buyers are more selective in their pursuit of ownership. To illustrate, a limited number of listings are available within the coveted $2 to $3 million sweet spot, with areas like Leaside reporting just two homes available for sale in that price range in early August. The same holds true for uber-luxe properties, with buyers finding just three properties to choose from over the $10 million price point in Forest Hill and none in Rosedale.

Homebuying patterns remain consistent with those experienced in recent years, with buyers looking to trade up to larger homes or more prestigious neighbourhoods. Many buyers are returning to the 416 area code, from their brief Covid exodus, although inventory levels remain limited in comparison with the 905. We are also seeing an increase of Asian buyers explore the market, while they are on vacation, and looking at moving their money out of China.

Steadily climbing interest rates, inflation, and geo-political concerns continue to impact consumer confidence. Fears of a recession and subsequent market downturn weight heavily, despite unemployment levels hovering at the lowest rate since the 1970s at 4.9 per cent. Mixed messages are creating confusion within markets, underscored by exceptionally volatile stock markets that continue to fluctuate with each federal announcement. The stability that has anchored our market for decades on end has been brought into question. Though I believe the fundamentals of a lack of developable land, listings, and dramatic population growth, remain unchanged and should continue to bode well for the entire market.

In terms of the luxury housing market, the trend we are seeing is a return to more normal market conditions. While the froth is off the top of the market – the underlying market remains relatively stable with buyers and sellers being somewhat undeterred as they are transacting in the same market. Conditions are expected to remain balanced for the foreseeable future. Though some neighbourhoods are shifting to a more buyer-friendly territory, there is still strong demand for the premier pockets of the city, but the market is starved for new product. I have noticed that many newly introduced homes have outperformed their “look-alike” home that was already on the market. I am also seeing a lot of sellers maintain their asking price from months ago, believing the market will shift back by late fall/ early winter. Time will tell if they will be correct.

At times like these, when market conditions are transitioning, the guidance of an experienced realtor can prove invaluable in the purchase or sale of a home. I am proud to say my team and I have successfully guided our clients through five different market corrections. So, if you’re thinking about buying or selling, or if you’re just interested in a more current market evaluation on your existing property, please do not hesitate to reach out. My team and I are always happy to offer our expertise.

Enjoy the rest of your summer,

Barry Cohen