Canadian Post COVID-19 Real Estate Market Outlook

“The real estate industry has been declared an essential service but it is not business as usual. This was done to ensure homeowners with pending closings – those who have already bought and need to sell, or those who have sold and have to buy, are able to transact.”

Pre and Post COVID Real Estate Market Outlook

First let us take a look at GTA real estate performance for the month of March 2020, the latter part of which was hit by COVID 19 effects on home buying & selling.

TRREB’s March 2020 Market Watch reported reported 8,012 home sales through the MLS® System. This figure is up by 12.3% compared to 7,132 sales reported in March 2019. However, despite a strong increase in sales for March 2020 as a whole, there was a clear break in market activity between the pre-COVID-19 and post-COVID-19 periods.

The start of the post-COVID-19 period was the week beginning Sunday, March 15

  • Overall March sales is clearly driven by the solid first two weeks of the month. There were 4,643 sales reported in the pre-COVID-19 period, accounting for 58% of total transactions and representing a 49% increase when compared to the first 14 days of March 2019.
  • There were 3,369 sales reported during the post Corona virus period. This number is down by 15.9% compared to the same period in March 2019.
  • For March as a whole, new listings were up by 3% year-over-year to 14,424. However, new listings dropped during the second half of the month by 18.4%. The MLS® Home
  • Price Index Composite Benchmark price was up by 11.1% year-over-year in March 2020.
  • The average selling price for March 2020 as a whole was $902,680. This is higher by 14.5% when compared to March 2019.
  • The average selling price for sales reported between March 15 and 31 was $862,563. This is down from the first half of March 2020, but still up by 10.5% compared to the same period last year

Quick Look at Average Home Prices in Mississauga for the Month of March

Home Type Avg Price (Mar 2020) Avg Price (Mar 2019) % Change
Detached $ 1,273,225 $ 1,083,306 17.5%
Semi-detached $ 840,726 $ 723,789 16.1%
Condo Townhouse $ 666,281 $ 582,741 14.3%
Condo Apartment $ 547,336 $ 458,767 19.3%

What to Expect in the Post COVID Real Estate Market

As per Robert Hogue, RBC senior economist, home sales at the start of 2020 saw the  “biggest burst of activity in more than two years.

But now the forecasts made at the start of the year are out of the window. The Conference Board of Canada says threats to the housing market due to the virus include uncertain job security and the plunging values of consumer investments that were going to be used for down payments.

While the real estate industry has been declared an essential service but it is not business as usual. Boards and associations recommend that Realtors find alternatives to face-to-face meetings, such as virtual tours and video conferencing.

“The resale market in many cities looks to be shutting down, with no open houses and appraisers unable to inspect interiors,” says a report by CIBC economists Avery Shenfeld, Benjamin Tal and Royce Mendes. “Since both demand and supply will be frozen and transactions (are) tumbling, prices might also remain frozen in place over the next few months, unlike the dives we have seen in some past recessions.”

Hogue says that home sales will “plummet across the board in the coming weeks. In all likelihood, this will be a temporary hit with a rebound taking place later this year once the COVID-19 situation settles down.” But he agrees that property values will likely hold. “We believe the position strength – current tight demand-supply conditions in most major markets – will provide some cushion against a correction.” 

In the condo market, the CIBC report says that “some who bought presale units will be unable to close due to job losses; some investor buyers have lost their down payments in the stock market. Developers who sold these units years ago might take them back and later find buyers at higher prices than prevailed during the presale, judging by the rise in condo prices in recent years.”

There may be good news for those looking to rent a condo as rental rates may decline due to a softening in demand. “That’s not just about job losses, but also a dramatic reduction in immigration and non-permanent residents, which had been bringing some 450,000 people in a year, many of whom are renters,” says the CIBC report. “With Canada closing its borders and travel restricted, it could be many quarters before those inflows fully rebound.”

On the renting front, Ontario has also brought in changes to the renting laws. You may read them if you are a Landlord or Tenant.

For home owners, CMHC is offering mortgage deferrals to those who need it for insured mortgages. Banks and other lenders are also offering deferrals on uninsured mortgages. But remember to ask questions and read the fine print regarding mortgage deferral costs & implications.

In retrospect: impact of the 2003 SARS epidemic on real estate market

While the COVID 19 pandemic is much more severe than the SARS epidemic in 2003, the death toll from SARS was significant, and there was an enormous cost associated with the resources deployed to contain the spread. But despite the challenges to contain the virus, the Canadian GDP grew by $134 billion in 2003.

While the GTA housing market was expected to slow down as a result of the epidemic, housing sales data from that year show no signs of suffering. In fact, sales volumes increased, as well as average sale price, staying on the same trajectory as what was initially expected for that year.

COVID 19 to date, has far exceeded the global death toll of SARS, and we can expect that the economic fall-out will be way more profound. However, using the SARS impact on the Canadian housing market as a baseline, there is hope that any dips will be moderate, and not long term.

Ability of Canadians to Carry the Debt Burden during COVID-19

Canadians carry a heavy household debt burden. This means there are limited funds for Canadians to dip into to weather this pandemic. Unemployment rates are climbing and it is uncertain whether the Government assistance being provided to Canadians will be enough.

The Bank of Canada cut the overnight lending rate by more than 1 full percent this month to help soften any market impacts. While this has made it easier for Canadians to secure a variable rate mortgage or a line of credit, it will be interesting to see whether these low interest rates will be attractive to a population which is already so much in debt. If demand drops over the next few months, this may lead to lower home prices.

Speculators are predicting more of a levelling off, rather than a significant dip in prices. However, with such low housing inventory available, it is unlikely that any price change will be significant.

To burst or for a real estate market to collapse, there would need to be a stagnant demand, with an influx of supply, leading to a sharp drop in prices.

While little remains certain about the months ahead, based on the market’s reactions in the past, and the factors currently at play, is that Canada will likely come out of the COVID-19 crisis with markets across the country remaining relatively strong. While demand is expected to decrease as a result of the outbreak, there aren’t enough signs indicating an increase in supply, or any significant impacts upon price.

In the short-terms, the odds of a bursting the real estate bubble are low.

Our Two Cents on the Post COVID Real Estate Market Outlook

Our investor clients have been messaging us worried about the collapse of real estate market. And rightly so. On an average there used to be 15+ buyers bidding  for a single property (properties in less than $800K range) as listings were down -45% across the GTA before COVID.

Now, even if 50% buyers move out of the market due to various reasons, we will still have 7.5 buyers per property as long as the supply of listings remains the same. But with job loss and no immediate price appreciation, listing supply can go from -45% to +10%. So 7 buyers can further reduce to 3 buyers per property OR let’s say, to 2 buyers per property.

We might still have a negligible price drop by October 2020. And as our economy improves, we can have a huge surge in prices. It all depends on interest rates, job security and immigration. Government mostly controls all these three variables, and would like to ensure a thriving (or improving) economy, so we can expect positive market in the coming days.

Should you wait to buy?

We can get good deals at below market prices currently. So there is no point to wait as long as you can afford to buy.

Here’s an example of how investments work:

February 21: Restaurants International (Tim Horton) stock was $89

Today (April 15) it is at: $58 (which is down by 34%)

In the next six months to one year, it can come back to: $89

So it does it really matter in a long run? The true or right market value of an investment has to come back with time. Buying something at a discount definitely helps, as you are certain of gains in the long run. The same holds true for real estate. If you can buy you a property at a lower price, it can certainly help, with a higher net profit at the time of sale.

However, a point to keep in mind is that people have seen considerable lowering of their stock portfolios due to COVID. For millennial first time buyers who were counting on their investments to help pay for down payments, this will mean pressing pause on plans to enter the market.

Having said that, one can argue that real estate makes a safer investment option currently, for those who can afford it. For those who have the money, real estate has never looked more enticing. In light of these precarious stock markets, those looking for a more sound area to invest their money are now turning to Canadian real estate.

Contact Team Kalia to set up an over-the-phone Buyer or Seller Consultation 

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