Honestly by now, you’re probably getting sick of hearing depressing “Coronavirus” news online every day. But, can you really blame anyone? The pandemic has virtually affected nearly every part of our lives, and certainly the real estate market has fallen victim. In a report by the Canadian Mortgage and Housing Corporation during the end of last month, they projected that there will be a “historic recession in 2020” and that housing sales and prices really won’t get back to “normal” levels until 2022 at least.
In more depressing news, the CMHC estimates that prices will drop 9-18% more from pre-pandemic numbers before a clear recovery can be seen(great news if you’re looking for a house though).
Housing construction project starts are also projected to decline by a whopping 75% along with different areas experiencing different economic conditions, such as Alberta prices projected to lose 25% due to their populations oil dependence.
With all these gloomy statistics, there still remains optimism that we can see a recovery in the future. Today we’ll be shedding some positive light about the real estate market and how we can possibly recover from the pandemic shock that originally caused home sales to tank. Here are 3 reasons as to why we can expect to see home sales recover in the near future.
How real estate can recover
Reason #1: Employment will get better
The reality of the situation is, even though right now a large number of Canadians are on emergency benefits, the job climate will get better. Main reason for such high unemployment rates is, of course, due to lockdown procedures not allowing Canadians to get back to work. Even Bob Dugan, CMHC chief economist, believes that “as pandemic containment measures are lifted and economic conditions gradually improve”. How long certain lockdown measures remain in place are still to be decided by the government, however it’s definitely a good sign when Ontario regions such as Toronto and Peel are officially announced to move into stage 2 of reopening. Because we can expect to see employment get better, buyers will become more opportunistic and have greater security when buying, knowing that their jobs aren’t on the line. Buyers will also have more disposable income for their down payment, and sellers with a secure job position can feel safer with selling their current home to get closer to their workplace.
In areas such as Alberta, where plunging oil prices have hurt their economy because of oil dependence, improving socioeconomic conditions would mean a return to work, and those regions can feel better knowing that workers from other regions would flock back in along with returning workers, therefore driving home sales and prices back to where they used to be.
Reason #2: Construction can start again
Within the CMHC report, they also state that because of lockdown restrictions on housing construction projects, house starts could decline by as much as 75% from Q1 2020. However later on, they also go on to mention that recovery can be seen during the second half of 2021. Again, this is a case that’s reliant on the loosening of restrictions and reopening of the economy.
As lockdown measures begin to loosen, we can expect to see construction projects resuming work. Referring back to our real estate article back in early May, we talked about how the restrictions had affected housing developments. One of the worries here is that because of uncertain times, future investors had halted plans on future developments and some existing investors had scraped their plans all together. Although it’s definitely a positive for the real estate market that construction can resume bringing in more supply for potential clients, we have yet to see how the pandemic has changed future plans and if short-term project volumes will be reduced.
Reason #3: Lowered interest rates
With the Bank of Canada and Tiff Macklem deciding on a 0.25% interest rate as being the “floor”, we can also expect to see interest rates stay that way through till 2022. One thing to note here is that interest rates and housing prices don’t necessarily go hand-in-hand. For instance, a rising economy with higher interest rates can still expect higher price inflations since in those circumstances, there tends to be higher income, employment and consumer confidence. Although lowered interest rates isn’t as big of a factor as the other two reasons, this is an important point to consider.
As of right now, we can assume that the Bank of Canada is planning on holding interest rates at around 0.25% until at least 2022. This means that if the economy were to recover sooner than we thought and unemployment goes down will consumer confidence resumes, we could still see lowered borrowing costs even with a recovered economy. This would be the best case scenario, in which case buyers would want to get in while interest rates are still low and sellers feel more secure selling in an economically sound environment.
Hopefully that helped shed light on some of the ways we can expect the Canadian real estate market return to normal conditions in the near future. As unemployment numbers get better each month along with consumer confidence, we can start to see at least some light at the end of the tunnel. Canadians are going out more which, hopefully, helps improve their moods and mental health. Of course, nothing is fine and dandy just yet and we aren’t out of the clear, but it’s safe to say we’re moving in the right direction. Don’t be too optimistic about real estate just yet, as reports really aren’t showing a strong recovery for at least a year or two.