Real estate is increasingly a tale of two markets — a luxury sector that is booming, and the rest of the market that continues to struggle with higher rates and low inventory.

Overall real estate sales fell 4% nationwide in the first quarter, according to Redfin. Yet, luxury real estate sales increased more than 2%, posting their best year-over-year gains in three years, according to Redfin.

Real estate experts and brokers chalk up the divergence to interest rates and supply. With mortgage rates now above 7% for a 30-year fixed loan, most homebuyers are finding prices out of reach. Affluent and wealthy buyers, however, are snapping up homes with cash, making them less vulnerable to high rates.

Nearly half of all luxury homes, defined by Redfin as homes in the top 5% of their metro area by value, were bought with all cash in the quarter, according to Redfin. That is the highest share in at least a decade. In Manhattan, all-cash deals hit a record 68% of all sales, according to Miller Samuel.

The flood of cash is also driving up prices at the top. Median luxury-home prices soared nearly 9% in the quarter, roughly twice the increase seen in the broader market, according to Redfin. The median price of luxury homes hit an all-time record of $1,225,000 during the period.

“People with the means to buy high-end homes are jumping in now because they feel confident prices will continue to rise,” said David Palmer, a Redfin agent in Seattle, where the median-priced luxury home sells for $2.7 million. “They’re ready to buy with more optimism and less apprehension.”

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New condo sales in the Toronto region dropped to their lowest level since the 2009 financial crisis, with investors balking at lofty purchase prices and higher borrowing costs.

The slowdown has imperilled the construction of homes at a time when governments are desperately trying to spur more building in a bid to make housing more affordable. The cost of housing is out of reach for many Canadian residents with the average monthly rent around $2,000 and the typical home selling for more than $700,000. The pace of home building needs to accelerate to meet demand of a growing population. But the staggering drop in new condo sales will lead to less investment in housing.

There were 1,461 new condo sales in the Greater Toronto and Hamilton Area in the first quarter of the year, according to industry research firm Urbanation Inc. That marked the lowest quarterly amount since early 2009, when the world was reeling from the U.S. housing meltdown and global recession.

“It is dead. I would never use words like this, but I am because it is true,” said Simeon Papailias, managing partner with real estate brokerage REC Canada, whose firm sells new condos, also known as preconstruction condos because they have not been built yet.

Mr. Papailias said his firm used to handle an average of 300 preconstruction sales a day. So far this year, there has been an average of 500 preconstruction sales per month.

The preconstruction condo market started to falter in 2022 as the Bank of Canada raised interest rates to cool inflation. Preconstruction buyers do not take out a mortgage until their condo unit is built and that process can take several years. However, they still need to show developers up front that they can qualify for a loan when the condo building has been completed.

And it’s not just the high borrowing costs. New condo prices have been climbing as developers face higher construction costs. Although prices declined incrementally from the fourth quarter of 2023 to the first quarter of this year, some downtown Toronto projects have been selling for a minimum of $1,800 per square foot. That means a 500 square foot studio would cost $900,000. That is unattractive for prospective homeowners who plan to live in their condo, as well as for investors, who make up the bulk of the preconstruction purchases.

Buyers can find cheaper and larger condos that have already been built. “Existing square footage is so much cheaper. The builders and their future pricing is a huge issue,” said Tuli Parubets, a mortgage agent with Mortgage Scout who works with homebuyers in the Toronto region.

Investors would have to charge more than the going market rental rate to cover their mortgage and other condo-related costs. “It’s very difficult for investors to make the numbers work on buying new condos, given their record high price premium over resales and steeply negative cash flow on rentals,” said Urbanation president Shaun Hildebrand.

Pierre Carapetian, who has sold real estate in the Toronto region for 18 years, said he has steered his clients away from preconstruction homes into the resale market because resale homes are cheaper.

“In the last two years, I have not recommended a single project,” said Mr. Carapetian, who runs his own real estate brokerage. “I could not in good conscience recommend anything at this juncture because it makes no logical sense.”

As a result, demand has crumbled and developers have put projects on hold. Urbanation said since the market started slowing in 2022, it has counted five dozen projects have been put on hold indefinitely. That accounts for 21,505 condo units.

For projects that have been launched, the weak pace of sales is affecting their ability to get financing to start construction. During the first quarter, projects in the preconstruction phase were only 50 per cent sold, on average. That compared to an average of 61 per cent in the first quarter of 2023, and an average of 85 per cent in 2022.

Lenders typically require developers to sell 70 per cent of their units for construction financing. The longer it takes to sell preconstruction condos, the longer it will take to get financing and start construction. That will eventually lead to fewer homes being built.

“No launches, no sales and no starts,” said Mr. Papailias. “It’s absolutely the most vicious cycle.”

The slowdown is occurring as governments try to make it easier for real estate developers to build. The federal government recently announced that it will allow first-time homebuyers to take out a 30-year mortgage for a preconstruction home if they make a deposit that is less than 20 per cent of the home’s purchase price and they pay for mortgage insurance. The old mortgage rules did not allow insured-mortgage borrowers to take out a loan longer than 25 years.

However, given that Toronto region developers typically require a 20 per cent deposit, the longer amortization is not expected to make a big difference in the new home market.

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Sometime during his first marriage, Pratt picked up a farm he calls Stillwater Ranch in the San Juan Islands of Washington state. While it’s unknown how much Pratt paid for the land and when exactly he purchased it, he shared a sweet video of his son Jack running around in the fields there in early 2018. After he and Schwarzenegger began dating, Pratt shared photos of the lovebirds enjoying time out on the farm, and the author and motivational speaker even once gifted Pratt a pair of pigs for his birthday. “We named them Tim and Faith because they’re beautiful and their love is palpable and inspiring,” he captioned a photo. “I love them and can’t wait to watch them grow. And no they will not be bacon!” Pratt has shared that he loves “biking and running…and ocean swimming” out on the farm, as “it really clears [his] mind.” Pratt and Schwarzenegger still own this property.

Santa Monica starter home

In 2017, Shriver and her estranged husband, Arnold Schwarzenegger, were spotted perusing houses in Los Angeles for Katherine and her younger brother Patrick, who had just graduated from the University of Southern California. Shriver was reportedly especially interested in two homes that were across the street from each other, but she ultimately withdrew the bids when the offers got too high. Instead, the family snapped up a bright bungalow in Santa Monica for an undisclosed amount and Katherine took the opportunity to test out her interior decorating skills. “This place is much more mature than any of the previous places I’ve lived,” she said at the time, adding that she combined clean white linen furniture with a hint of dark navy for some “LA edge.” Around the time she and Pratt got engaged in early 2019, the actor shared a sweet clip of himself helping her move out of the Santa Monica pad, with the insinuation that the couple was moving in together. It appears that Schwarzenegger still maintains this property, though she no longer lives there.

Pacific Palisades palace

Pratt paid $15.6 million for an unfinished Pacific Palisades mansion in 2018, and it is here where Schwarzenegger would eventually move in with him. According to Variety, the Jurassic World actor had plans to complete a five-bedroom, six-bathroom abode measuring 10,000 square feet, and the couple spent the next two years renovating the pad extensively. The posh residence was situated in an exclusive gated neighborhood known as Marquez Knolls, and there were only five other homes in the enclave (none of which belonged to celebrities, according to reports). The interior of the pad can best be described as California casual, with wood-beamed ceilings, warm neutral wood and stone materials, and large floor-to-ceiling doors that opened completely for smooth indoor-outdoor flow. The pair enjoyed the property for a few years before listing the home for $32 million in 2023 and selling it for that amount.

Historic Brentwood midcentury-modern residence

An aerial view of the Brentwood neighborhood of Los Angeles

Photo: Adam Mustafa / Getty Images

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