This year has been a year of unprecedented events. Events that have shaken the world and whose ripples and effects have yet to be fully seen. It creates a lot of uncertainty in all aspects of what once was our regular lives as we continue to adjust to an ever-changing “new normal”. We at GoCo get a lot of questions about the uncertain future of real estate as a global pandemic ravages the world. Real estate has always been a milestone whether it is for investment or for home-ownership but with such events with global-scale effects, it still creates much uncertainty even for real estate.
We can’t see the future. The following information is based on predictions and sources from economists, financial institutions and folks that are far more qualified than us. Even with that in mind, there’s no certain outcome and there are far too many factors to account for to make any concrete conclusions. We live in unprecedented times but this doesn’t mean we can’t look at history and imagine a path forward.
The real estate market has many opportunities that work in its favour even in the face of a global pandemic. Prior to the mid-March shut down, rather than seeing a decline in business, many sales representatives saw an influx in demand with multiple showings and pre-emptive offers. Spring is a busy time for the real estate market and Toronto’s market has been a seller’s market. With a huge shortage of homes on the market, demand was soaring and prices rose to match the increasing competition. When the lockdown began in mid-march, the market stayed steady as many buyers were already pre-approved and ready to buy. Many of those pre-qualified buyers had already sold their homes and their need for housing did not stop during the lockdown. The government also dropped interest rates to stimulate the market, allowing some buyers to be able to enter the market. Prices remained steady as the competition did not significantly decrease. Additionally, isolation may have piqued a lot of interest in new housing. As people were in lockdown and spending most of their time in their homes, many realised that their home was not ideal and became motivated to enter the market. The supply of buyers decreased as immigration numbers declined by 85% compared to last year as Canada’s borders closed to all non-essential traffic. These factors work together to drive the continuing performance of the Toronto real estate market.
But that’s all short-term. In a longer period over 6 months, things begin to look different. As we said earlier, it’s difficult to make an accurate prediction given the unprecedented time we live in but there are a number of threats that work against the real estate market. The government subsidies and stimulus will eventually end. We are already seeing that with CERB wrapping up. Companies and workers will be affected by this response. Some companies that were using subsidies to float workers may have to let those workers go. We are already at the beginning of a recession across Canada. Ontario announced it has been plunged into a recession earlier this month. A recession will affect all aspects of the economy including the real estate sector. As the recession hits, overall demand will shrink. Industries like the service sector are going to be heavily affected and many of the service sector workers will not be in the pool of buyers in the real estate market. As mentioned before, the lower levels of immigration will shrink the pool of buyers. In the long term, lower immigration will have an economic impact as Canada’s population growth will slow meaning the working population will slow and economic output will slow.
However, there are opportunities in the long term. Lower interest rates will stimulate some buyers and allow buyers into the market. The market will likely soften and prices aren’t expected to rise at the same rate that Toronto experienced. It would seem that in the next year or two, the market will shift to a buyer’s market particularly geared towards long term investment. Historically, the housing market has always recovered from a recession in Canada as the population continues to grow aided by steady fiscal policy and government.
All this being said, there are many factors that are hard to predict. The reality is that Canada is very trade-dependent - more than 30% of its GDP is driven by exports and 1 in 5 jobs in Canada are in the export sector. Our biggest trading partner is the US which is, unfortunately, suffering under COVID-19. This presents us with many issues when it comes to looking forward as the global economy suffers.
As we live in these unprecedented times, we look forward to see if there is a positive outcome in the near future. We can’t predict the future but we can look at the past and present and make suggestions. It looks like the real estate market may tilt to a buyer’s market for the next few years which presents some fantastic opportunities for many buyers but this isn’t a guarantee. The market will likely recover from any decline over the next five or so years, as historically it always has, meaning that buying a property for your own residence will continue to be a great investment. It is recommended for all potential buyers and sellers to stay informed and keep up to date with new market predictions and trends.