(Bloomberg) -- Canada set out to cool a hot housing market, and did it ever.
Luxury-property sales in the nation’s priciest markets fell sharply in the first half of the year amid a slew of government regulations, according to a report released Tuesday by Sotheby’s International Realty Canada. Sales of homes above C$1 million ($760,000) fell 46 percent in Toronto and 19 percent in Vancouver from a year earlier, while the number of homes sold above C$4 million dropped 51 percent in Toronto and 47 percent in Vancouver.
The declines follow a wave of lending constraints and taxes implemented by both the federal and provincial governments to tame soaring prices fueled by speculative purchases.
“The collision of rising mortgage rates, stricter lending guidelines and cascading governmental policies and taxes” have hurt a number of important Canadian markets, Brad Henderson, president and CEO of the Sotheby’s unit, said in a statement.
In the condominium subcategory, Vancouver bucked the trend, as homebuyers who were priced out of detached houses turned toward the high-rise alternative. Sales of condos above C$1 million rose 9 percent in the first six months of the year from the same period in 2017, and 35 percent for condos above C$4 million. In a city where the benchmark selling price for a detached house was C$1,598,200 in June, a C$1 million condo still looks pretty good, with growing demand from young families and professionals.
“There’s a belief that condos, in particular new condos, are going to continue to be a good investment notwithstanding some of the interim policy measures, and that the market will be able to absorb it and to move on,” Henderson said in a phone interview.
In Toronto, on the other hand, sales of condos above C$1 million dropped 13 percent to 658 units. Sales of condos over C$4 million slumped even more, down 40 percent.
Henderson sees a rebound in the Toronto luxury market in the second half of the year, when the comparison won’t be as tough as it was to the hot first half of 2017. The rebound may take slightly longer in Vancouver, as the market continues to adjust to new policy changes by the provincial government, he said.
Montreal was the only major Canadian city in Sotheby’s report to see overall growth in luxury sales from last year’s first half, with homes above C$1 million jumping 24 percent to 460 sales. The bustling market was protected from the sort of provincial and municipal policies used in Toronto and Vancouver to control prices, Sotheby’s said. Henderson predicts it will level off in the third quarter.
Despite “sluggish” home-price growth in the first half of the year, prices will likely rise 1.9 percent over the next three months, according to a report released by Royal LePage Tuesday. Prices in the Toronto region are seen up 2.1 percent to C$838,984 from last quarter and Vancouver is expected to rise 1.5 percent to C$1,289,120.
“The market has begun to absorb and adjust to the new realities,” Phil Soper, president and CEO of Royal LePage, said in a statement. “The fundamentals have not changed. The economy is strong and unemployment is very low. We face shortages in our major cities, with many more people looking for homes than the market has available for purchase or rent. Upward pressure on prices will likely return to most markets during the third quarter.”
Two wild cards that could tamp down a rebound in Toronto and Vancouver: escalating trade tensions with the U.S. and interest rate increases by the Bank of Canada.
©2018 Bloomberg L.P.