Luxury-home market defies residential trend

Oct. 3, 2008 | Market Update | By Aaron Rossetti

The market for high-end homes continues to be robust in most parts of British Columbia at a time when the housing market in general is slowing down. But that may end soon, according to a report by Re/Max released Thursday.

In Greater Vancouver, sales of homes with price tags of more than $2 million were up five per cent for the first seven months of 2008, while overall residential sales dropped 24 per cent during the same period, the report said.

Victoria also saw sales of high-end homes -- valued at $1 million or more in that market -- rise four per cent, compared to a drop of 18 per cent in home sales generally.

In Kelowna however, sales of luxury homes -- $1 million or more -- dropped 11 per cent year over year, still better than the 30-per-cent fall felt across the board.

South Surrey-White Rock was the hardest hit of B.C. cities reviewed, with a 28-per-cent drop in sales of homes costing more than $1.2 million so far this year. Numbers for the residential market as a whole for the area were not included in the report.

The market for luxury homes "is a separate market with its own factors," Re/Max's regional executive vice-president Elton Ash said in an interview.

What's been pushing the positive numbers in part is pent-up demand.

In 2006 and 2007, there was very little inventory as people snapped up all homes, even the higher-end ones, Ash said.

But buyers of luxury homes "are very discriminating," he said. And those looking for a $5-million or $6-million home can afford to wait for the right house.

"So that's one reason why general market conditions don't affect the luxury home market as much," Ash said.

But once they find what they're looking for, demand is likely to level off, Ash said.

Another factor pushing sales is an influx of buyers from both Europe and mainland China, Ash said. But with the uncertain economic situation, notably the financial crisis in the United States, these buyers are likely to be more cautious about jumping into the market, which will further dampen sales.

Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of Business at the University of B.C., said there is generally more variation at the upper end of the housing market than the lower end.

"The higher end of the market tends to be a more volatile market because the product is more varied and therefore search times will tend to be longer, and bid-ask spreads tend to be larger because there is less information about what a property is worth," Somerville said.

As well, there is less pressure for sales to happen quickly, since both the buyer and seller can afford to take their time, he said.

But while the market is volatile, luxury homes don't usually see the same price drops felt in the rest of the market, he added.

However, the Re/Max report said that in south Surrey, many high-end properties are overpriced and have been on the market for more than a year.

In that area, 14 per cent of total residential sales were high-end, whereas in all of Metro Vancouver, two per cent of house sales are for more than the $2-million high-end price tag used as a bench mark in the report.

But for a real luxury home -- "properties that are truly unique" -- the purchase price is more likely to be at least $4 million, said Karin Smith, a REALTOR® with Re/Max Select Properties. Homes in that price range make up a very small part of the market, she said.

Elsewhere in the country, sales of high-end homes in Edmonton -- valued at more than $850,000 -- dropped 64 per cent. But in Regina, the number of luxury home sales, with prices of more than $500,000, jumped from 17 to 69, or 306 per cent.