COVID-19 has made reading next year’s real estate market harder than ever

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Canadians are set to get an update on the state of the housing market and the latest COVID-19 resurgence has only added another layer of confusion to a year of uncertainty over direction real estate prices in 2021.
On Tuesday, the Canadian Real Estate Association is expected to release its latest sales figures and resale home prices, and although most real estate watchers see a short term trend continues With the weakening prices of condominiums and the increase in low-rise property prices, the long-term impact of the pandemic remains much less certain.

An informal sample of economists keeping tabs on the residential real estate market shows a range of views based on considerations related to the duration of the disease impact, including the highest borrowing rates. low and so buyers will continue to bid the most popular low-rise home prices.

When it comes to residential real estate, price changes have a big effect on ordinary people for whom a home is a place to live, not just an investment. But even then, for most people, a home is still their biggest purchase in life. And unlike other investments, property management is relatively complex and demanding.

Involuntary donor

When Anna Blackwell and her husband bought a two-bedroom downtown condo in 2016, the Wilfrid Laurier University political science graduate had no plans to own it. But after one of the pair was offered a move to Portland, Oregon, the couple decided to rent out their home in Toronto – at least until they heard if the move was going well in the States. United. In September, their tenant gave notice and at the end of November moved out.

“We were pretty shocked when we found out how much cheaper we had to list to get our leased place in this competitive market,” Blackwell said in an email conversation. The property that was earning $ 3,150 per month was now generating $ 2,600.

The drop in rents has been beneficial for tenants. And while the decline hurt, it was by no means devastating for Blackwell, who bought four years ago in a sharply rising market. But like the Bloomberg economic news service highlighted last week, real estate investors taking possession of the condos they pledged to buy when the market looked hot are now in a bind – have to accept loss of rent or loss when they sell.

Investors who signed up to buy apartments when the market looked hot are now in a bind – they have to accept a loss of rent or a loss when they sell. (Don Pittis / CBC)

The drop in rental income and property prices did not surprise Ben Rabidoux – who runs North Cove Advisors, an information service for the professional residential real estate market – and who predicted the current disruption of the rental market in April. He suggested that a sharp drop in demand, accentuated by what some saw as excess high-rise construction in some of Canada’s hottest markets, would translate into lower selling prices if the effect of the pandemic lasted more than six months.

Blackwell was fortunate to find a tenant for his condo in Toronto. Other reports say vacancy rates have risen so much that speculators are turning to buying rental properties, hoping to upgrade empty apartments and charge more for them once the market rebounds, as over in many markets, empty apartments are less affected by rent control.

Although based on U.S. figures, data from Pew Research shows that as the economic effects of the pandemic continue, more young people are living with their parents than at any time since the Great Depression. This was only one of the reasons, including a drop in immigration and a decline in temporary residents, including foreign students, that Rabidoux cited for the drop in real estate demand.

Like rental speculators, economists representing real estate companies and experts in the banking industry say they are almost universally convinced that the decline in the condominium market is temporary and that markets will get back on track once Canadians are over. vaccinated.

Many say that outside of crowded urban centers, the demand for housing in suburbs, small towns and rural areas will only increase. BMO economist Jennifer Lee suggests that buyers will continue to seek more space in a work-from-home boom that may not end with the pandemic.

“Instead of taking the train, you can go a little further now, where real estate was previously cheaper,” Lee said.

Go a little further

Carl Gomez, chief Canadian economist for US real estate data giant CoStar, agrees that rising house prices in major cities will continue to drive demand outside urban centers. But he is less convinced that pent-up demand created by low interest rates during the first lockout can persist at the same rate.

Statistics Canada released new data on Friday showing consumers were back on a borrowing frenzy and demand for mortgages and housing investment hit an all-time high in the three months ending September . Data Vancouver and Toronto Real Estate Boards earlier this month, the loan rush continues.

But Gomez says downtown markets like Toronto have seen a glut of what he calls “shoebox condos” favored by investors – not to live in or even necessarily to rent, but because their value increases steadily.

“I wonder if that demand will be there in the long term,” he said.

The long term really matters for the homes we buy to live for decades at a time. And while high levels of immigration have helped spike demand in recent years, and lower interest rates have helped push prices up, not everyone is convinced these two things will continue.

Many suggest that the demand for housing in suburbs, small towns and rural areas will only increase as people seek more space in a work-from-home boom that may not end with the pandemic. (Don Pittis / CBC)

Economist Moshe Lander is one of those willing to say some of the things people in the real estate industry would just leave unsaid. Lander fears that the pandemic may signal a demographic turning point on the market.

“No matter how much immigration we have, there isn’t enough incoming demand for housing of any form,” Lander said, citing Canada’s aging population and low birth rate. “It’s just not the big investment it was before. ”

He said people in Alberta and those who have invested in condos in Toronto get a little glimpse of a market that is not reliably growing month after month and year after year. And he warns that today’s attractive interest rates, now as low as 1%, can end up having a distorting effect because there is no way to last the full term of the mortgage.

« [Home-buyers] could very quickly find themselves sitting in a situation where the real value of their debt has not been eroded by inflation, “Lander said,” and they are now facing higher interest rates with very little equity accumulated in the house, especially if the house prices no longer rise as before. ”

Follow Don on Twitter @don_pittis



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