The Future of Canadian Real Estate – Looking Beyond the Pandemic
So what does the Future of Canadian Real Estate look like?
Many people are questioning the future of Canadian real estate as life is slowly moving to normal Or shall we say the new normal with social and physical distancing still very much in place.
2020 started with a bang for Canadian real estate, particularly of major cities like Toronto, Vancouver and even Mississauga. It was a undoubtedly a sellers’ market. It was projected to be a busy Spring home buying season. But things cooled down significantly as a result of the COVID-19 pandemic. Despite the lock-down, home buying and selling activity is still happening.
Many are optimistic predicting that the pandemic will cause only a momentary sting to our economy and the real estate market.
As per a recent REMAX 2020 Market Outlook:
- 56% of Canadians who are planning to engage in the real estate market say they expect to do so within less than a year
- Almost half (44%) of Canadians believe that the real estate market will bounce back to the strength it was before COVID-19 by 2021
- 29% of Canadians believe that before the end of 2020, the Canadian housing market will return to its pre-pandemic strength
What to expect in the short and long term
Real Estate Activity in the Short-term
The Toronto Regional Real Estate Board (TRREB) is projecting that as social distancing measures loosen, real estate market activity will quickly ramp up again. This is expected to happen near the end of Summer and more likely by Fall.
Home buyers will have financial and emotional strength to start their home search again. By the same token, home sellers will feel more comfortable allowing people to visit their homes for showings and open houses.
Right now there are some small price adjustments. Homes are still getting multiple offers and over asking prices, but it is not as crazy as it was at the start of the year. Slightly lower home prices are on the table due to tight market conditions. And sellers have also adjusted their price expectation to be able to open the door for buyers who have firm financing.
Relief measures
The Canadian government has stepped in to help the economy and Canadians across the country. Financial relief measures have been put in place to reduce the impact of the pandemic on our economy. These measures should reduce household debt as Canadians go through this challenging time.
There are specific measures in place for businesses also. Majority of businesses (especially small businesses) have taken huge revenue hits or have been forced to shut their doors for good. The financial benefits will allow some businesses to keep staff employed. This could help people to think of real estate, if it has been on the mind. However, it cannot be said with certainty that the relief measures will indeed entice buyers to enter the housing market. The CMHC recently announced changes to their insured mortgage rules designed to protect home buyers from defaulting. However, private mortgage insurers like Genworth countered this move by announcing no changes to rules for people going through them.
Interest rates
The mortgage stress test and high-interest rates have made it very tough for many home buyers to qualify for a mortgage, especially for first-time home buyers.
The Bank of Canada has significantly lowered the benchmark interest rate to 0.25% to help boost the economy and keep inflation stable. This is the lowest the rate has ever been!
This is a great move as a short-term measure. Prospective home buyers can qualify for more affordable mortgage payments. This can also allow them to borrow a larger amount. This can be an ideal time to make a purchase for first-time home buyers with enough money for a down payment. Of course having a secure job to make monthly payments will be crucial.
Uncertainty in the mind of Buyers
We are conducting a lot of buyers consultation sessions and are finding that people are ready to buy but are just wanting to wait a little bit to feel mentally more relaxed to be buying at the current.
There are also people who have some money that they could potentially use to put a down payment on the first home or an investment property and are just wondering if they can get a bigger bang for their buck in the stock market. We recently posted about what makes a better investment tool-real estate or stocks. Do read if you are also sitting somewhere on the fence on the subject.
The Future of Canadian Real Estate – Market Activity in the Long-term
Google trends data from the 2008-2009 recession shows that the search volume for homes for sale in Canada and the USA continued to increase through to 2010/11. This trend points to the fact that the market recovered at a relatively fast rate following the economic downturn.
This is quite promising to suggest that after the COVID-19 pandemic, our economy is likely to rebound. Employment rates will increase and household debts will reduce. This in turn will lead to a heightened demand for homes and condo. Increased demand coupled with low inventory that blankets major real estate markets, home prices are expected to be on the rise again.
While there is a general sense of uncertainty in the short-term, it is the important to remember that we have made strong recoveries after previous recessions. The Canadian real estate market has been hot for the past few years now and is expected to pick up from where we left it in March 2020.
What About the Global Outlook – How does Canada Compare with the US & Europe
Real Estate Market Sentiments per REMAX 2020 Global Outlook Report
As restrictions begin to ease in Europe and the U.S., outcomes are dependent upon locality and the economic conditions of a state, country, and city prior to the crisis.
United States
Leading indicators in the U.S. housing market, such as showing activity from ShowingTime data, point to an optimistic rebound as regions gradually open parts of the economy. This is particularly relevant in secondary and tertiary markets.
- In-person showings and foot traffic to offices in many US cities has returned to levels seen in January 2020.
- RE/MAX Brokers and Agents across the country report that multiple-offer scenarios are on the rise.
- Increasing activity in secondary and tertiary markets.
Europe
The impact of COVID-19 on European housing markets, and the recovery, differs between countries. Regions that heavily depend on industries that have been hit hard by the pandemic, such as tourism, may experience a slower housing market recovery.
- RE/MAX Europe reports website traffic is up 70% in May 2020 compared to May 2019, signalling growing demand.
- Requests from end consumers were up 63% in May 2020 compared to May 2019.
Canada
Canadian housing markets experienced a steep decline in sales beginning in the second half of March when pandemic-related lockdowns took effect. The decrease in sales and new listings is proportional, and overall market balance remains largely unchanged.
• Demand could begin to improve faster than initially anticipated. RE/MAX brokers in Toronto, Ottawa and Vancouver report low housing inventory, and multiple-offer scenarios are common.
• Markets in Alberta and Newfoundland are the exception, where the shocks from the dive in resource revenues have been compounded by the pandemic.
• RE/MAX Canada estimates relative price stability, with a single-digit price correction toward the end of 2020.
