What is the Future of Canadian Real Estate?
It seems difficult to forecast the future of the Canadian real estate market during this time. Many of us have questions about when social distancing measures will be loosened, and life will return to normal.
Earlier this year the market was sizzling and in most major cities, such as Toronto and Vancouver, it was a sellers’ market. Right up until early March it was projected to be a busy Spring homebuying season. Yet, things have cooled down significantly as a result of the covid-19 pandemic lockdown.
Many people are not sure what the future of the Canadian housing market holds. This uncertainty has caused the market to dry up. Yet, many are predicting that this is a momentary sting to our economy and housing market.
Here are a few indicators of what we may be able to expect in the coming months and years:
Real Estate Market 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 likely early Fall. The organization believes that the economy will recover, as business operations go back to normal and unemployment rates decrease.
Homebuyers will have more financial power and will be more inclined to start their home search again. While, sellers will feel more comfortable allowing people to visit their homes for open houses.
For now, some economists are predicting that property values will fall temporarily, and lower home prices will be on the table due to tight market conditions. Sellers will be forced to negotiate on price opening the door for buyers who have job security and financing to swoop in.
The Canadian government has stepped in during this time to bolster the economy and aid to Canadians across the country. They’ve created financial relief measures to help soften the impact of the coronavirus on our economy. These benefits have been put in place to reduce household debt as people navigate this challenging time.
The Canadian government has also created specific measures for businesses. As a result of social distancing, many businesses have taken revenue hits or have had to close their doors for the unforeseeable future. Yet, financial benefits will allow more businesses to keep people employed and provide job security. This could encourage more Canadians to continue to engage with the real estate market
However, it’s unclear how much these financial relief measures will entice Canadians to enter the market and to what degree they will.
The mortgage stress test along with high-interest rates have made it challenging for many homebuyers to qualify for a mortgage. This is especially the case for first-time homebuyers who typically don’t have as much money available for a down payment. The good news is that the stress caused by these obstacles may be eased by recent interest rate interventions.
In the short-term 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. For those who want to jump at the opportunity and take advantage of low interest rates, they can qualify for more affordable mortgage payments. This can also allow them to borrow a larger amount, which could help to finance a home with mores square footage include features they desire.
For first-time homebuyers who don’t have cash tied up in stocks or other investments and have enough money for a down payment this can be an ideal time to make a purchase. Other key considerations include having job security to ensure they’ll be able to make their mortgage payments even a few months from now.
As the coronavirus situation unfolds, it is hard to say how much lowered interest rates will entice people to purchase homes.
Real Estate Market Activity in the Long-term
Data from Google trends during the recession in 2008-2009 caused by the housing crisis, show that the search volume for homes for sale in the US and Canada continued to increase through these years into 2010/11. This trend provides evidence that following the economic downturn, the market recovered at a relatively fast rate.
This can be promising data that can put people at ease that after the coronavirus pandemic, our economy is likely to rebound. Employment rates will increase since businesses will be able to operate fully again. As a result, household debt will decline because people will be able to afford to pay their bills.
The demand for homes will grow and we will likely see a lot of pent up demand from the time of social distancing that will push people back into the market. This will especially be true in markets where there has already been a lot of interest, such as Vancouver and Toronto. Coupled with the low inventory we saw before this issue occurred; competition in the market will cause housing prices to be on the rise again.
You may be concerned about the direction the Canadian real estate market may take in the future. However, with government intervention the impact of the coronavirus may not hurt the economy as bad as we think. It’s also important to note that previous recessions have shown us we’ve made strong recoveries. The real estate market has been hot the past few years. Once the coronavirus pandemic is under control, we will likely see the market heat up once again.
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