While our top priority during this coronavirus epidemic is the well-being of our family and friends, many of us can't help but wonder - what's going to happen to the real estate market in Canada?
Keep in Mind
- Obviously none of us have a crystal ball at the beginning stages of this situation, so the best we can do is watch how the various factors that influence the real estate market will change.
- Real estate is not as liquid as other things such as stocks or what seems to be becoming the newest form of currency in North America - toilet paper.
- The stock market, as we witnessed over the past few weeks, has dropped substantially. It's also risen quite a bit on Friday - S&P, for example, was up 9.29%, and is dropping again today, around 8% (at the time of this writing), as the market tries to find the true cost of this virus on the market - it will possibly keep teeter-tottering on a downslope for the next while.
- What will happen next depends on the virus. Based on numerous sources, it's mutating. If it becomes tolerant to whatever medicine and vaccination that is developed against it, it will of course continue to spread until it's been through a large portion of the world population, despite countries' efforts to slow it down. It seems like something out of an apocalyptic movie (luckily, the only zombies are the ones filling their minivan and trailer to the max with toilet paper). But, the key here is prevention, which most of us are bad at without realizing (think - scrolling through your dirty phone that you've touched after shaking people's hands, while eating your sandwich). So it seems a spread of the virus over the next few months is somewhat inevitable - it just takes one or two people with lack of sanitary sense to spread it to everyone else.
When Will It Peak?
- Based on multiple researchers' hypotheses, the virus will peak in a couple of months based on the current rate of spread, and will last until somewhere around mid-summer. Of course, this may change, but if they're right about the virus being around for that long, there will possibly be a temporary downturn of the real estate market prices. Based on the exponential increase, it seems like it is possible that the virus and the slower economic state will be around for months, even after it peaks(2). Let's not also forget our friends down south (the U.S. of A!) - who, at the time of this writing, have 4,138 confirmed cases and increasing, compared to our 375.2 Many Canadian snowbirds are down there right now and will be coming back with the virus. Despite the vetting of people coming in from other countries for the virus, not everyone shows symptoms, and may just be a carrier. Canada has not even closed off the border to USA citizens yet, at the time of this writing, due to the intertwining of our economies, based on what Trudeau says.(4)
How Will This Affect Prices?
- Most people would probably rather stay home during this time, but many of us see this is an opportunity to buy a home with less competition - so we may see a bit more of a buyer's market (since there will be fewer showings and fewer offers on homes), especially since the prices in Barrie and surrounding areas have been priced high enough to kick many buyers out of the market lately. On the other side of the coin, seller's responsible agents may advise them to hold off listing the house, if they can, until the virus epidemic has cooled off, creating less supply.
- One thing I can say at the moment, is that the number of Open Houses has decreased, and I'm seeing much fewer agents at the brokerage. Our Barrie brokerage hours have been decreased as well, closing about 3 hours earlier than usual, with weekends being closed. I suspect it's the same with other brokerages as well.
- San Francisco, for example, is ordering residents to stay home unless it's for essential needs.(3) A similar situation may arise in major cities such as Toronto - imagine what an economic slowdown that will cause. Maybe not for Netflix.
Delinquencies and Affordability of Homes
- We should also look at the affordability factor. Many people are currently living on a tight budget (with the cost of living having risen, but wages not keeping up with that increase) - yet we're all seeing our neighbors buying up brand new trucks, buying new homes, and other flashy things to keep up with the Joneses. They've pulled out new loans, re-financed their mortgage(s), etc., as is natural when the economy is happily going upwards in any region and country.
- However, when it comes to their income, not all employers can simply send their employees home because it may be the type of position that requires their presence. Not all of these employees will feel it's worth risking their health over their work, for the fear of getting themselves and their elders sick (who are at a higher risk of death from this virus). If these homeowners and tenants are not getting paid, some won't be able to make their mortgage and rent payments on time. This won't be the case for most, because we Canadians seem to statistically manage our money better than many other countries, but a setback nonetheless. Let's not also forget all the small business owners that will be affected by this, who have rent/mortgage on their home AND place of business.
Interest Rate Changes
- Interest rates have been cut by the feds recently in Canada to help regulate the economy, the central bank's benchmark now being at 0.75%, according to CBC(1). Will this help? Definitely, but perhaps not enough to prevent the slowdown in demand for homes. We'll have to see what where the "crowd mentality" will take the market, as it did in 2017 when the real estate market overheated and the current selling out of toilet paper.
Behind the Curtain
- Realistically, our economy has been due for a reset as part of its natural cycle for a while now. The coronavirus is a good excuse for that reset to be "triggered," just as it has occurred in the stock market.
- As we have seen in Toronto and many other major cities in Canada the past many years, the inflow of immigrants with money and the "investor hype" is one of the factors keeping the demand for real estate high, while builders are trying to keep up with the demand by encouraging cities to speed up the process for developments.
- Since this isn't a Barrie, Toronto or even Canada-specific virus, but something that we are facing worldwide, it will not make real estate investing/purchasing any less attractive in Canada overall.
- The Trudeau government has closed the borders to most non-citizens today (March 16, 2020, except for US citizens), which will cause a short-term slowdown in the inflow of new residents. For how long? No one knows yet…again, it depends on the virus. How much will it affect the real estate market? It will probably start becoming noticeable in the next 1 or 2 months.
So, What REALLY Happens Next?
- As most other articles that you've probably read state, nobody knows. The best you can do is prepare for either scenario.
- If you're a buyer, perhaps you can prepare for this to become an opportunity if it ends up becoming a buyer's market, which I see as a likely scenario. Especially because there have been further interest rate cuts.
- If you're a seller - this is a tougher one because you likely have a deadline. If you know you have to sell asap or you're in a high-demand area, the best you can do is use media to the best of your ability. For example, when I list my clients' homes for sale, I use not just photos, but also a professionally-done video and a 3D tour. That way, buyers can view the home from every angle to ensure that it truly suits them. If it does, they're more likely to come view it even with this virus happening. If they're skeptical because of the virus - incentivize them to come with the promise of a free toilet paper roll and a pump of hand sanitizer. Otherwise, if there's no rush, I'd suggest possibly riding out this wave before listing.
- We may even see things slowly going back to normal in May or June, when the kids will have already been attending school again for a while, employees are back at work, and everyone starts to calm down. Human trials on a vaccine will be commencing in USA on the 23rd of March, so the spread may even be contained in the next few months.(5)
A Bit of a Tip
- For those of us that are comfortable with diversifying their portfolio, it will soon be a good time (if not now) to buy up some dividend-paying stocks for the long run (i.e. long-term buy-and-hold investing, not day trading).
- Of course, do your research, but relatively stable companies such as Enbridge (ENB) can be obtained for a discount, with a decent dividend.
Let Me Know Your Opinion!
- Comment here or reach out - firstname.lastname@example.org.
1 - CBC [Bank of Canada makes emergency interest rate cut] https://www.cbc.ca/news/business/bank-of-canada-1.5497098
2 - Coronavirus COVID-19 Global Cases by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University (JHU) - https://coronavirus.jhu.edu/map.html
3 - CNBC [San Francisco orders residents to stay inside, except for essential needs] https://www.cnbc.com/2020/03/16/san-francisco-orders-residents-to-stay-inside-except-for-essential-needs.html
4 - CNBC [Canada closing borders to noncitizens because of coronavirus, U.S. citizens exempt from ban ‘for the moment’] https://www.cnbc.com/2020/03/16/coronavirus-response-canada-closing-borders-to-non-citizens.html
5 - BBC [Coronavirus: US volunteers to test first vaccine] https://www.bbc.com/news/health-51906604