A shortage of supply and hot demand from downsizers is expected to boost the Toronto area’s luxury condo prices by 10 per cent in the next year, although high-end house prices won’t see the same lift, according to a luxury residential report by Royal LePage.

It shows that the median house price at the top end of the market has dropped only about $6,000 to $3.52 million year over year in the first quarter of 2018. But that’s about where it’s expected to stay through the first quarter of 2019.

Luxury condo prices, however, are forecast to rise 10.4 per cent to $1.85 million on average by the end of the first quarter next year — from $1.7 million this year — the largest predicted gain in both the house and condo segments, according to the report.

Sales of luxury houses declined 68 per cent year over year, but only 18 per cent compared to 2016 in the first quarter. Condo sales were also down 28 per cent year over year in that period, but 90 per cent higher than the same quarter of 2016.

The same forces that have pushed buyers to the sidelines since last April — new mortgage stress tests, higher interest rates and the lingering malaise imposed by the Ontario Fair Housing plan — have rippled to the top of the market, said Royal LePage CEO Phil Soper.

“If you have fewer entry-level buyers, you have fewer move-up. If you have fewer move-up, you have fewer entry-level luxury and, if you have less entry-level luxury, you have fewer people buying luxury homes,” said Soper.

A previous Royal LePage report said that the new mortgage rules have reduced the buying power of many first-time buyers by 16.5 per cent.

“It’s the whole cycle of the real estate market that has been interrupted and it impacts the apex properties as well as the entry-level properties — even if the people themselves aren’t looking for financing,” said Soper.

“It’s like the plankton are missing and the whales are starving.”

The report defines luxury homes as those that cost at least three times the median price in the overall market. Ninety single-family home sales fell into that category between January and March this year, compared to 281 in the same period last year and 110 in 2016. There were only 61 luxury condos sold in the first quarter this year, compared to 85 and 32 in 2017 and 2016, respectively.

The Toronto Real Estate Board reported the average single-family home price was $1.03 million in April and condos averaged $559,343.

Given the “serial interventions” from governments — including a special school tax on $3 million-plus homes in Vancouver that has prompted protests by owners — prices on luxury property have been resilient, said Soper.

But he said there is also the possibility that the strong economy and high employment could kick-start the cycle of over-heating prices again in markets like Toronto and Vancouver again.

“We don’t have enough homes for people to rent — we have new people migrating from other parts of Canada and we have millennials rollling into home-buying age and, of course, immigration. You add all this together and there’s a tremendous amount of pressure on housing supply,” he said.

“A long-term, multi-level, federal, local and provincial national housing plan is so important.”

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Foreign buyers are a small subset of the luxury market, he said.

“While property even in Vancouver and Toronto is expensive for Canadians, on a global scale it’s quite affordable, particularly in the condominium space. In American dollars it looks like a bargain, even in Vancouver.”