The median shifts – luxury RE is taking a hit

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Today’s article will focus on the effect of a small shift on the fringes of the market.

Key takeaway: as with any type of distribution, the effect of a change in market sentiments (i.e. red hot early 2017 market vs. cool early 2018 market) means a massive changes in the tail end of the distribution.

Even if the median stays the same, even a slight change in the distribution (standard deviation) can have massive effect on the tail end of the distribution (i.e. > 2 sigma). Image credits: lionscrestcapital

More details from the Financial Post:

  1. Sales of detached homes in Toronto worth >$3Mil fell by 58% vs. decline of 36% for the entire detached home market.
  2. If you consider 2017 an outlier, 2018’s numbers are in line with 2016 figures.

The article doesn’t really address the root of the problem: affordability. In my opinion, the easiest way to explain this is not 1) foreign ownership tax, 2) appreciation in CAD, 3) downsizing, etc. The easiest way to explain this trend is that trends are the reverse of what they were last year. Last year, as the market was glowing red hot, those that could afford a condo stretched for a townhouse, those who could afford a townhouse stretched for detached homes, etc., but today, the reverse is happening. Considering the effects of the new new mortgage rules that were enacted at the beginning of 2018 and the fact that RE isn’t the “get-rich-quick” scheme it once was, owners and speculators are sitting on the sidelines waiting for the dust to settle. Thus, those that have to buy aren’t as exuberant, and as a result the opposite of the market forces that we experienced last year are taking hold in early 2018.

 

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Hadi is Honours civil of engineering graduate with solid project management experience in the construction industry. Solutions-focused, results-oriented with strong business acumen and entrepreneurial spirit. Currently, he is working as an assistant site-superintendant with Darcon Inc. at one of Vaughan's biggest developments, Centro Square.

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