Canada’s Housing Market: What Is Coming
In the matter of a month, Canada, and every corner of the world, has been brought to an abrupt standstill as the COVID-19 outbreak has swept its way across borders. As social isolation, and in some cases, lock-down measures are put into place to help contain the spread of the virus, there has been a profound impact on the global economy. Due to the dramatic decline in demand, global stock markets have experienced sharp falls; on March 16th the Dow Jones plunged a record breaking 3000 points, the largest recorded single day fall.
This has led many to question how the Canadian Housing Market will fare amid such a crisis. While there remains much uncertainty regarding the impact of the pandemic, there are certainly signs indicating how the national market may recover once the worst of the outbreak has passed. Below, we take a look at the shifts in Canadian Real Estate that have taken place over the past month, and the outlook for the national housing market in the months ahead.
Showcasing Homes, Safely
Real estate agents nation-wide have been making rapid adjustments to how to they showcase their listed properties to ensure that the safety of their client, and themselves, remains a priority. Most provincial real estate councils have strongly urged ceasing open houses, serving as a push for REALTORS® to make use of creative methods to effectively service buyer and sellers already within their pipeline:
- More agents are using innovative digital tools, such as 360-degree interactive tours to provide an immersive experience for prospective buyers.
- Some agents are providing personized live video-walk-throughs for their clients, using apps such as FaceTime or Zoom, versus having the buyers view the property in person.
- While the above alternatives are a great option when you are narrowing down your options, many buyers will still request an in-person tour for their shortlisted properties. In these cases, agents insist upon a ‘hands in your pockets’ policy and are taking sole responsibility for touching any doorknobs and light switches. And, of course, hand sanitizer is used liberally.
- Where possible, agents are offering their clients alternatives for signing on the bottom line, using electronic signatures through apps like DocuSign to complete paperwork.
These necessary measures are not ideal within an industry synonymous with handshakes, bustling open houses, and face-to-face rapport. However, agents are optimistic that these are temporary allowances until the crisis has passed, after which all will return to business as usual.
Home Sales, Demand, and Supply Across Canada
According to the Canadian Housing Market Outlook for 2020, healthy gains in sales activity were predicted for this year, due to increased consumer confidence and an uptick in demand driven by millennials and young couples. At the start of the year, this trend was playing out, with markets across the country experiencing healthy demand and price growth.
Coming into March, local markets across the country were still on fire, helping to stoke the optimism within the real estate world that nothing could douse the flames of this hot spring housing market, not even a global pandemic. Home sales were up in Canada’s biggest markets in first two weeks of March: Toronto sales rose an impressive 50% over this period, compared to the same period last year. Real Estate professionals within Vancouver reported the same trend in the opening of March, with heightened demand, multiple offers, and steady sales activity.
The second half of the month showed a sharp contrast. Year over year sales activity in Toronto was down 37% for this period, and demand had close to dried up within Vancouver. Calgary, dealing with the simultaneous economic blow of the oil price slump, reported the lowest sales levels for March since 1995.
Robert Hogue, senior economist at RBC shared his predictions on the adjusted outlook for the Canadian Housing Market, based on the shifts witnessed over the past month:
- Canadian home resales will dive by almost 30% over the course of the year to 350,000 units, a 20-year low for the country.
- While a balance will be maintained in many local markets, surging unemployment and increased liquidity will eventually exert downward pressure on home prices across the country. In the second half of the year, Canada’s composite benchmark prices will fall by and average of 2.9%, year over year.
- Most at risk will be the Prairie provinces, where the economic burden of the plunging oil prices will be most felt. These regions already deal with high levels of housing supply, therefore prices will continue a fast downward descent.
Financial Incentives to Support Canadians
Over the course of March, the Bank of Canada made three cuts to the overnight lending rate, bringing the rate to the lowest it has been in years: 0.25%. While the big banks across the country quickly followed, with slashes to Prime Rates, the discount did not last long. Given the increased financial risk amidst coronavirus-related job losses and business closures, the banks raised their prime rates back up to pre-crisis levels.
Once the pandemic subsides, many are confident that the rate cuts will return, to align with the Bank of Canada rate. If this happens, Canadians will have access to lower rates on a variable rate mortgage and line of credit, allowing buyers to borrow more than prior to the crisis. With businesses re-opening their doors post-crisis, and Canadians returning to their jobs, consumer confidence will slowly start to rise and many hopeful buyers who may have put their plans on hold, will be eager to take advantage of these low rates.
Until then, the Canadian government (at the federal, provincial and municipal level) is offering a number of other financial relief measures to help Canadian homeowners and buyers during this time of economic vulnerability. This includes Mortgage Deferral Programs, Property Tax Deferrals, and Hydro Pricing reductions, among others.
A Cooler Spring, a Sizzling Fall
Real estate experts are saying that the COVID-19 outbreak will be a tough, but temporary blow to the Canadian housing market. As Canada collectively presses pause on the economy and our lifestyles, real estate demand and activity will temporarily take a seat.
The bounce-back of the national housing market, however, is projected to be strong. Hogue estimates that home sales will surge upwards of 40% next year: “exceptionally low interest rates, strengthening job markets and bounce-back in immigration will generate substantial tailwind.”
Others suggest that the bounce-back of Canada’s housing market may be even sooner. Once isolation and distancing measures are lifted, buyers will be eager to take advantage of cooler local markets, causing surges in real estate activity across the country. If this plays out, Canada can expect a hot Fall real estate market ahead!
from Remax Blog