Sales of homes worth at least $1 million rose in Ottawa last year even as overall transactions dropped from 2021 levels, a new report says.
Resales in the $1-million-to-$3.99-million range jumped 8.6 per cent year-over-year, real estate firm Engel & Volkers said in its year-end luxury real estate market report released this week.
So-called “luxury home” sales accounted for nearly 12 per cent of all transactions in 2022, up from nine per cent the previous year, the company reported.
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The rise in demand for million-dollar-plus properties came despite a steep decline in overall sales last year as rising interest rates forced buyers to the sidelines and drove down prices.
According to the Ottawa Real Estate Board, home sales in Ottawa fell 25 per cent in 2022 from the previous year, while the total sales volume dropped to $10.5 billion from $13 billion in 2021.
Engel & Volkers said rising interest rates began to dampen the luxury market in the second half of 2022 after two years of accelerating demand and steep price increases.
By year end, the average sale price in the $1-million-to-$3.99-million range was $1.27 million, the company said, an eight per cent decrease from its 2022 high set in August.
And while nearly one of every five homes sold in Ottawa in the first half of the year changed hands for at least $1 million, such transactions dropped off significantly in the final six months of 2022.
According to the report, a total of 1,400 residential-class properties and condos sold for between $1 million and $3.99 million in the first six months of last year, with an additional three homes cracking the $4-million barrier.
But in the second half of 2022, the number of sales valued at $1 million to $3.99 million fell to just 468, and only one residential property sold for more than $4 million.
“As intended, interest rate hikes blunted price escalation,” Engel & Volkers said in its report. “The region was previously attractive to buyers cashing in from more expensive markets such as Toronto and Vancouver. But, as interest rate hikes have affected the value of their current homes, this practice is less lucrative than before.”
The firm says it expects the luxury market to be more “balanced” in the year ahead as inventory piles up and new listings exceed sales volume. The company is forecasting average prices and overall sales in the $1-million-plus category to fall five per cent compared with 2022.
“Buyers may lose leverage by mid-March as the sharp impact of the interest rate hike cycle wears off,” it added. “Once buyers and sellers adjust to the new market, the sales volume and average sold price will see typical gains of about five per cent each year. As prices level off across the region, suburban and semi-rural regions will continue to see price decreases more rapidly than urban and semi-urban neighbourhoods.”
Meanwhile, a new report from Royal LePage says the aggregate Ottawa home price fell 2.7 per cent year-over-year in the fourth quarter to $719,900.
The real estate firm said Friday the median price of a single-family detached home decreased 5.7 per cent year-over-year to $826,300 in the fourth quarter, while the median price of a condominium decreased 8.1 per cent to $383,700 during the same period.
Ottawa’s slowdown mirrors a nationwide slump that began last spring when the Bank of Canada started hiking interest rates in a bid to rein in runaway inflation. The country’s benchmark interest rate now sits at 4.25 per cent – the highest it’s been since January 2008.
The hikes, which spur mortgage rate increases, have weighed on buying power and forced many to rethink their housing decisions.
“Many buyers are holding out for a bargain as prices continue to dip, and some sellers have refrained from listing their homes as they wait for purchaser demand to rise,” Jason Ralph, a broker at Ottawa’s Royal LePage Team Realty, said in a news release.
“Although many buyers have chosen to put their purchase plans on hold while they wait to see what interest rates do next, we know that there is a lot of pent-up demand waiting in the wings, especially in the first-time buyer segment. I expect that demand will return once interest rates stabilize.”
Ralph said suburban properties have “proven to be more resilient to price declines” as retirees and first-time buyers move to Ottawa’s outskirts in search of more space and cheaper housing.
The veteran realtor said “all signs are pointing towards a more balanced market” in 2023. Last month, Royal LePage said it expects the aggregate price of a home in Ottawa will rise two per cent year-over-year by the fourth quarter.
“Interest rates and inflation have been key indicators of real estate activity of late,” Ralph said. “A levelling-off or drop in borrowing rates will boost consumer confidence, resulting in an increase in activity in the Ottawa market.”
Royal LePage says the median price of a home in Canada in the fourth quarter of 2022 posted the first year-over-year decline since the end of 2008 during the financial crisis.
In its house price survey, the real estate company says the median aggregate price of a home was $757,100 in the final quarter of last year, down 2.8 per cent compared with the end of 2021.
Royal LePage says the aggregate price was down 2.3 per cent on a quarter-over-quarter basis to mark the third consecutive quarterly decline.
However, Royal LePage noted that home prices remain above pre-pandemic levels.
It says the national aggregate home price in the fourth quarter of 2022 was up 13.8 per cent compared with the same quarter in 2020 and 17.2 per cent higher than in the fourth quarter of 2019.
– With additional reporting from the Canadian Press