Before COVID-19 was declared a pandemic by the World Health Organization on March 11, the spring real estate market was set for a record-breaking sales season, especially in Canada’s largest cities. The Canadian Real Estate Association revealed the month of February was particularly hot for year-over-year sales, which rose 27% nationwide, indicating the busy spring buying season had started early. Similar performance was recorded for Toronto and Vancouver homes for sale; transactions rose 45.6% and 44.9% year over year in those cities, respectively. As well, a lack of new properties on the market was a prevalent theme in major urban centres, putting the squeeze on buyers, and leading to tight sellers’ market conditions.
But this all changed after the government announced the social distancing measures and all non-essential businesses were ordered to close. Despite this strong start, however, the activity has slowed down, as buyers and sellers already have or will reach a stalemate. Buyers are deciding to hold off on their home purchase amid uncertain health and economic conditions, while sellers—having seen what others got for their properties in the late winter months are hesitant to accept a lower offer today.
However, there are still those who need to buy and sell right now, such as those who have already sold their homes and are on a time crunch to buy a new one. These “highly motivated” buyers and sellers include people who need to relocate for work, are going or need to downsize or upsize quickly.
Buyers will be hesitant to purchase due to changing economic situations that will eventually affect their savings in the event of job loss, which would jeopardize their ability to secure mortgage financing for their home.
Overall, those who don’t have urgent real estate needs will most likely stay on the sidelines for now, as the situation evolves. That will surely impact the price of real estate. The sellers who have to sell will offer that on lower prices as affordability for some will be an issue. Some real estate experts and the banks have predicted that the housing prices in the Greater Toronto Area can drop by 30% or even more. No one can come up with the exact percentage of the price drop but there is consensus that prices will surely drop.
Prices will rebound
It’s hard to predict how long COVID-19 will continue to be a threat, along with its impacts on individuals, businesses and the market.
Few experts compare this to the 2017 circumstances but these are wildly different. The last time the Ontario real estate market witnessed a buyer-seller stalemate was in the spring of 2017 when the former provincial government introduced foreign buyers’ tax for Greater Toronto. While the foreign buyer tax had no effect on the financial capacity of the buyers, it only caused psychological cool down in the market. People were hesitant to buy amid uncertain times. The effects of that cool down lasted until mid-2019.
But despite all this the fundamentals of the markets don’t change for the major urban centres like Toronto and area. There is high demand and very limited inventory. Due to the limited inventory available, combined with the population growth in Ontario’s big cities, we can expect market activity to resume and recover quickly once we’ve mitigated the health risks from COVID-19 and the financial markets stabilize.
In a nutshell, the house prices will come down for a short period of time due to the ongoing situation and will rebound in the near future. No one is certain how quickly this will happen as the primary factor is the return of the normalcy in our daily lives. If the current situation continues for more than two more months the effects could be devastating. Let hope for the best and we should all try to be safe and thank all the people who are working in these hard times and try to bring the situation under control.
Balwant Bhangu | Pre-construction & New Homes Specialist
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