GTA Luxury Home Sales Are Up. What It Could Mean for Broader Market

Should Canadian homebuyers and sellers be gearing up for a strong 2025? Because if the luxury market is any indicator, then they should be, according to the latest luxury property stats from RE/MAX Canada. Let’s dig in.

The luxury segment of the Greater Toronto real estate market finished 2024 strong, with home sales over the $3-million price point up over 40 per cent in the fourth quarter compared to Q4 2023. Sales over $5 million were up a whopping 58.5 per cent in the fourth quarter.

Meanwhile, luxury condos did not fare as well as freehold over the $5 million threshold in Q4, with just one sale reported over $5 million (down from two sales during the same period in 2023) but movement was evident at lower price points, with 20 condo sales occurring at $3 million plus, up from 15 during the same period last year.

Fourth-quarter activity represented nearly 25 per cent of total luxury activity, up from 17.7 per cent in Q4 2023.

Why this matters: It’s called the trickle-down effect. What happens at higher price-points can often reverberate in the broader housing market, right down to the rental market.  All this to say, it could be further evidence that we’re on the rebound.

Market Catalysts

Downward pressure on interest rates: The 100-basis point interest rate cut in the fourth quarter accelerated momentum at the top end of the market.

Pent-up demand: Initial shock over Toronto’s luxury tax on homes priced over $3 million seriously curtailed activity in early 2024, with buyers and sellers shelving plans to buy and sell. Some buyers felt they could capitalize on a glut of properties in 2025 at 80 cents on the dollar but are now making moves with luxury expected to increase in values as higher inventory levels are depleted.

Softer housing values: Prices are off by five to 10 per cent, particularly between $5 million and $7.5 million. Higher inventory levels contributed to downward pressure on values in several luxury areas. However, the tighter the market in terms of inventory, the less give on values.

Greater selection: Tight inventory levels in years past have opened considerably in sought-after neighbourhoods in 2024, prompting hesitant buyers to take the leap.

Strong stock market performance: The TSX was up 18 per cent. Nasdaq up 30 per cent. S&P 500 up 24 per cent. All near-record levels of activity. Paper wealth typically translates into material wealth, be it a house or a car.

Rising consumer confidence levels: The worst is likely behind us. The interest-rate cuts are spurring activity and, despite the myth that rate cuts don’t affect the luxury segment, activity at lower- and mid-level price points does help to drive more momentum into the top end of the market.

The Evidence…

The transfer of wealth from baby boomers will continue to empower Gen X, Millennials and in some cases, Gen Z buyers, with billions of dollars poised to change hands in Canada over the next decade. In many cases, this is happening sooner in life in the form of an early inheritance gifted by living relatives. To that end, Statistics Canada reports that nearly one-third of all first-time homebuyers in Canada cover their down payment in whole or in part by money from parents or relatives.

The picture looks bright moving forward. In the World’s Wealthiest Cities Report released mid-2024 by London-based Henley and Partners ranked Toronto 13^th in the world for the number of high-net-worth individuals. Despite an expected slowdown in population growth, overall demand for properties in the GTA is expected to remain solid, especially for single-detached homes.

First time buyers return to market with CMHC extending the cap for insured mortgages to $1.5 million, stimulating demand for starter homes sales and initiating a ripple effect, which will extend to mid and higher price points. Eventually, all segment of the market will be working in tandem.

Changing Tides

There’s lots to look forward to this year like lower interest rates. The Bank of Canada’s next interest rate announcement is scheduled for January 29, 2025. Momentum is expected to continue to increase, as more buyers move off the sidelines and into the market. Pent-up demand exists, so this is expected to spur activity for some time.

We should see a return to more normal levels of home-buying activity as confidence returns to market.

Economic performance may be spotty. According to the Bank of Canada’s most recent press release, the Canadian economy grew by one per cent in the third quarter, somewhat below the Bank’s October projection, and the fourth quarter also looks weaker than projected. Third-quarter GDP growth was pulled down by business investment, inventories and exports. In contrast, consumer spending and housing activity both picked up, suggesting lower interest rates are beginning to boost household spending.

Canada’s unemployment rate rose to 6.8 per cent in November as employment continued to grow more slowly than the labour force. Wage growth showed some signs of easing but remains elevated relative to productivity.

A number of policy measures have been announced that are expected to affect the outlook for near-term growth and inflation in Canada. Reductions in targeted immigration levels suggest GDP growth next year will be below the Bank’s October forecast. The effects on inflation will likely be more muted, given that lower immigration dampens both demand and supply.

Other federal and provincial policies—including a temporary suspension of the GST on some consumer products, one-time payments to individuals, and changes to mortgage rules—are likely to affect the dynamics of demand and inflation.

The Bank will look through effects that are temporary and focus on underlying trends to guide its policy decisions.

CPI inflation has been about two per cent since the summer, and is expected to average close to the two-per-cent target over the next couple of years. Since October, the upward pressure on inflation from shelter and the downward pressure from goods prices have both moderated as expected.

Looking ahead, the GST holiday will temporarily lower inflation but that will be unwound once the GST break ends. Measures of core inflation will help us assess the trend in CPI inflation.

The upcoming Canadian election – possibly as early as spring – may bring change.

The wild card is the US, given threat of 25 per cent tariffs. The possibility the incoming US administration will impose new tariffs on Canadian exports to the United States has increased uncertainty and clouded the economic outlook.