The COVID-19 pandemic hit Canadian stock markets and businesses in waves of different sizes and speeds. Yet, within days, the entire economy was essentially on pause, forcing millions of Canadians to make tough decisions amid unprecedented conditions. It was shock to the system, and to everyone in it.
Whether to sell and/or buy a house this spring is among those tough decisions for many people. Should you sell in such uncertain times? Could you even sell? And what about buyers – is this a good time to go house hunting? Or, knowing that the economy will shrink considerably over the next year or so, should you delay a purchase now in the hopes of getting a better price as the economy continues to contract?
COVID-related uncertainties add new and challenging dimensions to the traditional supply-demand dynamics of real estate. So, what’s to become of Canada’s real estate market as the country slowly and painfully moves through and – one day – beyond the pandemic?
In short, hang on. It’s going to be a bumpy ride, but we’ll get through it.
This brief two-part series on COVID and Canada’s real estate market points out how and why there’s some room for optimism in the medium to longer terms.
Record-breaking pace comes to a screeching halt
As an article in Money Sense pointed out last month, the spring real estate market was on pace for a record-breaking sales season before COVID-19 was declared a pandemic by the World Health Organization on March 11. Canadian Real Estate Association figures for February showed very strong year-over-year sales across the country – up 27% nationwide, and almost 45% in Toronto and Vancouver.
That momentum carried into March. Real estate activity was vibrant in the first half of the month in many cities, and especially in Vancouver. In reporting on their figures, Ashley Smith, President of the Real Estate Board of Greater Vancouver, said “the first two weeks of the month were the busiest days of the year for our region with heightened demand and multiple offers becoming more common.”
Then the COVID-19 waves hit. Sales volume and value numbers for March in many key markets showed significant declines at the back half of the month. Real estate figures for the next few months, at the very least, will almost certainly show ongoing weaknesses across the board, reflecting just how far – and how fast – Canada tipped into recession.
We’re in recession – but for how long?
Analysis released on April 15 by the Bank of Canada suggests how bad things might get. Their models predict that the level of “real activity” in the economy was down “1-3 percent in the first quarter of 2020, and will be 15-30 percent lower in the second quarter than in fourth-quarter 2019.”
Bank of Canada Governor Stephen Poloz minced no words in his statement of that same day. “The shock is a global one, affecting all countries, but commodity-producing countries like Canada are being hit twice. In the very near term, policy-makers can do little more than cushion the blow.”
Dark though it is at the moment, there’s light at the end of the tunnel. In talking about the challenges facing the Canadian economy, Governor Poloz also spoke about how its strengths going into the pandemic will help us pull out of it.
“We started this whole episode with our economy operating [at] full employment, at capacity and inflation on target, which is not something that was shared by many other countries,” he told the House of Commons Finance Committee. “It’s like a person who is healthy and fit, has a better chance of shaking off the COVID-19 virus, so does a healthy, fit economy have more resilience as we go forward.”
Uncertainties in the real estate market
The full effects of COVID on real estate are unknowable at this time. But they are certainly disruptive in the short term at least.
Peter Norman, Chief Economist of the Altus Group, recently told an online meeting of the Canadian Association for Business Economics (CABE) that national housing supply dried up “pretty quickly” as the pandemic began to shut things down.
Lack of supply slammed the brakes on sales. Peter believes that home re-sales across Canada will crater in mid-2020, then start moving back upwards toward the end of the year and into 2021. He also believes that home renovations – key contributions to the value of housing, and, by extension, the wealth of homeowners – will follow a similar trend.
At the same time, ultra-low rates – the Bank of Canada just maintained its overnight target rates at 0.25% – could prop up prices.
Calgary-based Aaron Hector, Vice President and Financial Consultant, T.E. Wealth (Doherty & Bryant Financial Strategists), believes that mortgage payment postponement offers from many lenders “could hold off sharp price declines in the short term.” Plus, if the COVID risks start to fade over the coming months and we get back to something close to normal, Aaron feels that “we could see a resurgence in sales with pent up demand.”
In my next article about COVID and real estate I’ll look at downsizing, seniors’ housing, and how the working from home trend might influence the market.
Steven Bright, a longtime client of the firm, has worked in and written about financial services for more than 25 years. You can find him on LinkedIn.
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