Sales continued to be strong in March until the country began to fully realize the impact of COVID-19. Now, the forecasts that were written just a few weeks ago are out the window and we’re forced to look into an extremely murky crystal ball to figure out what will happen next.
“For what it’s worth, Canada’s housing market roared (in February) as the threat of COVID-19 still seemed at bay,” says Hogue. “Kinder weather – or was it a prescient move to get ahead of a looming coronavirus crisis? – inspired more sellers to list their property for sale, which finally helped quench some of the plentiful pent-up demand.”
But Hogue says housing inventory was tight even with the rise in new listings. “This is perhaps the biggest takeaway as buyers and sellers get set to hunker down in the face of coronavirus. Most local markets enter this challenging period from a position of strength. In fact, under normal circumstances, markets like Ottawa, Montreal, Halifax, London, Kitchener-Waterloo, Hamilton and even Toronto could use some degree of cooling, as they are at various stages of overheating.”
The Conference Board of Canada says threats to the housing market due to the virus include uncertain job security and the plunging values of consumer investments that were going to be used for down payments.
Real estate boards and associations across the country have told their members to stop holding open houses and avoid conducting showings and face-to-face meetings with clients. In Quebec, real estate activity has been ordered shut down but Ontario declared the industry an essential service.
In a message to members, the Toronto Regional Real Estate Board wrote, “The real estate industry has been declared an essential service but it is not business as usual. This was done to ensure homeowners with pending closings – those who have already bought and need to sell, or those who have sold and have to buy, are able to transact.”
Boards and associations recommend that agents find alternatives to face-to-face meetings, such as virtual tours and video conferencing.
“The resale market in many cities looks to be shutting down, with no open houses and appraisers unable to inspect interiors,” says a report by CIBC economists Avery Shenfeld, Benjamin Tal and Royce Mendes. “Since both demand and supply will be frozen and transactions (are) tumbling, prices might also remain frozen in place over the next few months, unlike the dives we have seen in some past recessions.”
Hogue says that home sales will “plummet across the board in the coming weeks. In all likelihood, this will be a temporary hit with a rebound taking place later this year once the COVID-19 situation settles down.” But he agrees that property values will likely hold. “We believe the position strength – current tight demand-supply conditions in most major markets – will provide some cushion against a correction.”
In the condo market, the CIBC report says that “some who bought presale units will be unable to close due to job losses; some investor buyers have lost their down payments in the stock market. Developers who sold these units years ago might take them back and later find buyers at higher prices than prevailed during the presale, judging by the rise in condo prices in recent years.”
There may be good news for those looking to rent a condo (and not-so-good news for investor owners) as rental rates may decline due to a softening in demand. “That’s not just about job losses, but also a dramatic reduction in immigration and non-permanent residents, which had been bringing some 450,000 people in a year, many of whom are renters,” says the CIBC report. “With Canada closing its borders and travel restricted, it could be many quarters before those inflows fully rebound.”
Tenant organizations and activist groups are calling for rents to be deferred for the next few months. Several governments have passed legislation that bar landlords from evicting tenants during the crisis.
“Can those landlords ride that out with no rental income? Our research suggests that most condo investors do not heavily rely on their rental income for their livelihood, and if needed they might be qualified for mortgage deferral payments,” says CMHC.
In a newspaper column, Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., wrote, “Tenants and homeowners who have the ability to pay their rent or mortgages can help by doing so. As Bob Dylan said, ‘A hero is someone who understands the responsibility that comes with his freedom.’ This allows us to focus our efforts on those in the greatest need.”
Siddall says CMHC is offering mortgage deferrals to individuals and housing providers who need it for insured mortgages. Banks and other lenders are also offering deferrals on uninsured mortgages.
However, some landlords fear that tenants will take advantage of the situation and refuse to pay their rent, leaving the landlords on the hook for bills that still must be paid.
