Million Dollar City

When it comes to homeowners, Calgary's million-dollar club is becoming more inclusive every minute.

With 64 homes priced at $1 million or more sold in August, Calgary's luxury homes market broke the record for most luxury homes sold in the month. Calgarians growing love for the lap of luxury also helped contribute to the highest average sale price and the second highest number of homes ever sold in the month of August. Assisted by strong employment and migration numbers reflecting Calgary's strong economy, a report from Sotheby's International Realty Canada predicts the good news will continue for the city's
luxury market.

"I think what was interesting from our perspective, especially in Alberta, is that the numbers could have been even been significantly better than they were," said ," said Ross McCredie, president and CEO of Sotheby's International Realty Canada. According to McCredie, had it not been for the floods that impacted the city and much of Southern Alberta, the luxury market could have an additional 10 to 20 per cent increase in sales.

As it was, August's 64 sales were double the number of million dollar plus homes sold in the city in August. Year-to-date, 524 homes priced at $1 million or more have been sold in Calgary, marking a 42 per cent increase over the 370 similarly priced homes sold through the first eight months of 2012.

Specifically, Sotheby's predicts the high number of executive level jobs created will continue to fuel demand for million dollar properties, as newcomers take advantage of the city's relatively affordable real estate market to upgrade.

In a report released by RBC in August, affordability levels in Calgary were shown to be amongst the best in Canada, with the purchase of a standard two-storey requiring just 33.6 per cent of the qualifying income of $92,200.

"Even with the strong economy and higher than average wages, buyers recognize that there is good value in all sectors of the Calgary market, including the higher end of the spectrum," said CREB® Vice-President Bill Kirk.

While sales both in and outside the luxury market have risen significantly in 2013 increasing by 27.5 per cent, prices have remained relatively affordable. As of August, the average year-over-year price of a single-family Calgary home had increased by 8.06 per cent, rising to $518,275.

However, according to Diana Petramala, economist for TD Economics, that rise has been aided at least in part by the demand for high-end homes.

"I do know it's true that the rise in prices in Calgary, at least over 2013, has been more or less driven by increased demand for higher priced homes," she said. "However, I think this reflects increased demand for single-family homes (which tend to be priced higher) over condo units (which come with a lower price tag)." Less influenced by short-term fluctuations, the benchmark price for a single-family home in the city reached $464,700 in August, a 7.4 per cent rise from the previous year and a 0.7 per cent increase over July.

Further emphasizing the demand for million dollar homes, in the five years leading up to 2013, the historical average for year-to-date million dollar home sales was 289. According to Petramala, the increase is due at least in part to the high demand for single-family homes coupled with a drop in the number of available properties and favourable buying conditions.

"I would argue that low rates and rising incomes are probably increasing preference for single-family homes — and a lack of listings is probably pushing prices for them up. Because building of multi-units is more popular, the supply of singlefamily homes is likely to remain relatively stable — and met with rising demand, this may keep prices elevated," she said.

Moving forward, one factor that could have an impact on the number of high-end home being sold is the move by major Canadian banks to increase mortgage rates. Brought about by a rising Canadian bond yield, rates have begun to creep upwards. While the move is likely to have an effect on the entire housing market, Petramala said high-end buyers are likely better positioned to survive any hike in rates.

"Certainly, the higher priced the home, the larger the impact of rising interest rates will be on affordability. However, we should note that in one of the rounds of mortgage insurance rule tightening, the department of finance restricted mortgage insurance on homes worth more than $1 million – so if someone is buying a $1 million dollar home they most likely have a substantial down payment and maintain a significant amount of equity in their home."