Like a pendulum, we’re not exactly sure which direction Canadian home prices will swing. However, we can make predictions about what may happen. From the Great Depression to the housing crisis recession of 2008/2009 we’ve seen our economy experience some tough times, but also recover stronger than ever. More recently, the coronavirus pandemic has put us in a difficult situation that many of us would have never expected to be in.
To shed some light on the impact to the market so far, home sales were down 69% in Toronto compared to April of last year. It’s evident that the market has slowed down due to social distancing measures. Yet, it can be difficult to know if it will be houses or condos which will be affected the most. Each type of home attracts different types of homebuyers, and issues surrounding job security may also put purchases on the back burner for now.
If we take a look at current real estate factors, we can try to determine which type of markets will be impacted.
The real estate industry is considered an essential service, which means it must adapt to the challenges of the coronavirus pandemic. Real estate agents, law offices, and moving companies all continue to operate to help fulfill this need. In Canada, housing is one of the economy’s largest sectors, generating 15% of our output.
The government is helping Canadians and businesses with financial relief measures to keep the economy stable and inflation low. Canadians can benefit by having increased job security and financial power to make a home purchase whether it’s a condo or house.
The Bank of Canada has come to the market’s rescue, by lowering the benchmark interest rate. This was an important measure to boost the economy during this time. For both house and condo purchases, Canadians can benefit from this record-low interest rate. This means people can borrow more or qualify for a larger mortgage while also making mortgage payments more affordable.
Townhouses and semi detached
Recent figures from Toronto Regional Real Estate Board (TRREB) show that in April the year-over-year price for townhouses and semi-detached houses was steady. This could provide evidence that this type of housing isn’t being affected as much as the detached and condo market, which saw the greatest declines.
Both townhouses and semi-detached homes are typically less expensive than detached homes. This could help more buyers to qualify for mortgages for these homes and this market segment could be attracting more homebuyers as a result. Therefore, they may be keen to take advantage of low interest rates and less competition to push home sales through regardless of current coronavirus measures.
Sellers won’t be motivated to list their homes on the market, if they believe buyers are spooked by the coronavirus outbreak. Most know that if buyers are afraid to enter the market, then there will be less competition and they may not be able to get the highest price for their home. This could be why we haven’t seen home prices drop significantly yet. For instance, in Vancouver, average detached home prices are on the rise, at 2.7% from a year earlier.
Although, some economists are projecting that over the next few months house prices will drop by 5%. Due to increasing unemployment rates there may be the potential for forced sellers. As a result, prices will be impacted as sellers start making concessions on sale prices.
While, the condo market is likely to be affected there is evidence to suggest that it won’t be affected equally. Economists are predicting that the luxury high-rise segment of the market will see the most declines. Since people who invest in condos typically rely on the stock market, the recent hit could deter people from making the leap into condo ownership.
As a result of questions surrounding job security and unemployment rates, many people may not be able to afford more expensive condo units.
The condo market typically attracts first-time homebuyers due to affordability in an expensive Greater Toronto Area market, however if these buyers don’t feel certain, they may take a wait-and-see approach for now. This could further impact the condo market compared to the housing market.
Many individual condo corporations have decided to not allow entry to their buildings unless you’re a current resident. This is an obstacle to traditional open houses. Instead, first-time homebuyers will need to rely on virtual home tours and technology to facilitate purchases in this market.
For those with job security and cash on hand, there’s an opportunity to purchase pre-construction condos. These types of condos are less expensive due to developers wanting to secure buyers early on in the process. In March, Realtors continued to see people purchasing pre-construction condos that weren’t expected to be built for five or six years. Once social distancing measures fully took hold, it’s unclear how much this particular market slowed down.
However, the coronavirus pandemic may not impact the condo market as severely, considering people can purchase pre-constructions without needing to go to an open house (review layouts and renderings) and can take advantage of lower prices upfront.
The challenge faced by some people is that they may not be able to close on their pre-construction deals during this time. If they’ve suffered job loss or reduced earnings, then they’re at risk of not being able to qualify for financing anymore. Depending on how businesses handle the shockwaves of the coronavirus, even this segment may see trouble.
The real estate market is being impacted by current coronavirus measures; however, this impact may not be equal across the market. For now, it seems both the condo market and the housing market are at risk of price impacts due to factors such as unemployment and uncertainty involving the coronavirus outbreak.