What does $1M get you in London? A lot more house than it used to

Sales of homes priced at more than $1 million have nosedived in London, with 2024 shaping up to be the slowest year since this segment of the market peaked during the pandemic years.

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According to figures collected by the London and St. Thomas Association of Realtors (LSTAR), 275 homes priced at $1 million or more sold in the London area in the first six months of the year.

That compares to 444 at the same point in 2021, 867 in 2022, and 307 in 2023, the latest sign of how higher borrowing costs have slowed a once scorching housing market.

Several factors are at play.

One of them is the price bubble the COVID-19 pandemic created, said Shahin Tabeshfard, a broker with Century 21 First Canadian Corp., who described 2021 and 2022 as “an anomaly” for the London-area market when even some townhouses would sell for more than $1 million.

“Prices were super inflated,” Tabeshfard said.

“In 2022, $1 million wouldn’t get you a large home. It would get you a standard, subdivisions house in a mid-to-high-range neighborhood. Now, $1 million plus looks a different lot; it gets you a 3,000-square-foot home in a good neighborhood.

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“So, there’s a huge divide between what was happening then and now.”

After peaking in early 2022 at around $825,000, the average sale price of a home in London last month was $671,000.

That also decline has made some homeowners, who got used to properties selling above asking prices, hesitant even to put up their properties for sale, Tabeshfard said.

“Some sellers have had trouble adjusting,” he said. “When in early 2022 your house was valued at $1.8 million. . . it’s really hard, psychologically, to now sell the property for $1.3 or $1.4 million, which is the current market value for that home.”

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Royal LePage’s Robert DiLoreto agrees.

“There’s a lot of good homes that should be on the market that aren’t being put on the market because people just say, ‘I’m not going to take that price. I’m going to wait for it to come back a little bit,’” he said.

During the pandemic-induced craze for housing, DiLoreto said buyers would drop large amounts of money simply to secure a property and get into the market, but would-be buyers today are weighing their options.

“Two years ago, you would go into a house for 15 minutes and if you didn’t make a decision, you would lose the house,” he said.

Demand for housing also has dropped as higher interest rates have made it difficult for first-time homebuyers to qualify for mortgages and enter the market, while also making the returns less appealing for investors.

Variable-rate mortgages at Canada’s biggest banks are above six per cent, meaning, in order to get approved for one, a buyer must pass a stress test at eight per cent. Such a high qualifying rate could also significantly reduce the amount for which a borrower is approved.

Last week, the Bank of Canada announced its second interest rate cut of the year, but more cuts will be needed before demand rises significantly, analysts say.

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