Low Inventory a Challenge for Canada’s Luxury Real Estate Market

This article was reposted from The Calgary Herald, May 5, 2023, by Joel Schlesinger, Article Here

Calgary’s luxury sales are declining, yet the segment’s relative affordability in Calgary is generating steady interest. 

Luxury remains relatively hot in Calgary’s resale real estate market compared with other major markets in Canada, a new report suggests.

Although activity in the $1 million-plus price range is not as high as it was last spring, the Top-Tier Real Estate: Spring 2023 State of Luxury report by Sotheby’s International Realty Canada points to Calgary’s luxury market being the healthiest among Canada’s largest cities

“Demand is certainly there,” Don Kottick, president and chief executive office of Sotheby’s International Realty Canada. “What’s holding it back really is the low number of properties coming on.”

Low inventory is a challenge in every major city from Vancouver to Montreal, particularly in the luxury markets, the report notes.

In fact, supply is even lower than last year when all resale markets were faced with unprecedented demand.

In part, the low inventory is a result of fewer sellers listing homes, Kottick adds.

While sales are down 64 per cent in the first three months of 2023 in Toronto, year over year, and 53 per cent in Vancouver in their luxury segments, Calgary’s high-end market has fared slightly better, down 36 per cent.

When compared with activity in the years before the pandemic, however, luxury market activity in Calgary so far this year is 223 per cent higher than the first quarter of 2020.

What’s more, activity remains far above the 10-year average sales activity for Calgary’s $1 million-plus market, the report adds.

“We may not be seeing more sales, but we are seeing the velocity (of sales) change with buyers’ time to make a decision shortening,” says Rachelle Starnes, a realtor with Coldwell Banker Complete Real Estate.

Driving the pace is low inventory among resales and even new homes.

In particular, prices in the new homes market for luxury are higher than they were before the pandemic as both material and labour costs have increased over the last year. At the same time, builders are also hampered by higher financing costs, Starnes adds.

The end result is less choice among both new builds and resales for luxury buyers.

While sales are down, demand in the Calgary market is still being driven by out-of-town buyers, mostly from Ontario, Kottick adds.

These are often buyers from the Greater Toronto Area where the average price of a home still exceeds $1 million. There, the luxury segment starts at $4 million, the Sotheby’s report notes.

In turn, buyers from Toronto who would have been looking in the mid-price ranges there may find themselves luxury buyers here, as the Sotheby’s report points out that Calgary’s luxury market starts at $1 million.

Yet Starnes cautions that threshold, after the last two years of strong activity, is now more like $1.5 million.

She adds that demand for acreage homes in the Rocky View and Foothills regions have fuelled price growth.

“Many of the luxury homes selling are in Springbank, Elbow Valley, Stonepine,” she says. “These communities are about eight minutes out of the city, so they are essentially like the suburbs.”

Sales for luxury homes — like other price ranges — is likely to see consistent growth in the coming months and years, Kottick forecasts.

This will largely be the result of ongoing low supply and anticipated demand growth in the face of federal government policy that aims to bring about 500,000 newcomers to Canada annually through to 2025.

“That means more people coming to Alberta, which means more buyers and more pressure on the inventory,” he says.

“But that’s not just a problem in Alberta; it’s a problem universal to Canada.”