When will the real estate industry recover from COVID-19 effects?
Curious about the impact of COVID-19 on Canadian real estate and when you can go back to business as usual?
Home sales in the US have taken a hit. By March, there was a 8.5% overall decline in US home sales, with as high as 11.7% slump in condominium sales. Newly listed properties also witnessed a yearly decrease of 44.1% in April, as more potential sellers postponed their home sales.
In April, home sales in the Greater Toronto Area in Canada fell down 67% from last year. Greater Vancouver’s April home sales weren’t only less than half the number of March sales but also hit its lowest point in almost 40 years; recording a 62.7% reduction in 10-year average sales. It is predicted that 35% less transactions in Canada will wipe out 0.6% GDP in 2020.
These stats show that the real estate market in North America, like most other businesses, is being affected by the physical distancing measures of COVID-19 prevention.
But will real estate be returning to status-quo after the relaxation of lockdown and physical/social distancing measures?
This is the million-dollar question on the lips of most buyers, sellers, and real estate agents. We suspect that the answer to this question is NO.
Who/What Drives Real Estate?
First, the main driver of real estate is a potential buyer, who can afford to make payment for the property. Typically, this is where mortgage comes in, as it helps spread payment for homeownership over a certain number of years.
The current mortgage rates in the US are low. However, with COVID-19 causing a rising unemployment toll, reaching more than 15% in May 2020 and considering that this number may not decrease soon, the future of USA real estate markets are uncertain.
Similarly the current Canada mortgage rates are also really low. But as unemployment rates continue to rise and less immigrants also come to Canada, the housing affordability goes down. While this might not be immediately evident as real estate prices do not move up or down as fast as stock market prices due to less liquidity in real estate, the number of recorded transactions is going down.
The Real Estate Industry is Leaning Towards a Wave of Foreclosure
With Airbnb feeling the heat of lockdown restrictions, and prominent patronage of real estate (e.g. luxury hotels) dropping, a wave of foreclosure might be looming. Many of the properties used for Airbnb would be introduced into the market in big cities either as rental properties or for sale. This is expected to have an adverse impact on real estate prices- as supply would be rising while demand is going down.
From global statistical indications, we are still far from the end of COVID-19 pandemic. It is quite possible that more serious waves of the pandemic will hit North America in the coming months which will likely have serious adverse impacts on the real estate market.
Despite Uncertain Times, Stay Ready
The real estate industry is facing unprecedented times, with so much uncertainty in the air about when normal services would resume. With severe economic impacts being felt in this industry already, experts predict that the earliest time real estate prices would return to pre-recession levels would be by late 2022.
Staying ready in these uncertain times favors the usage of non-traditional approaches, such as online real estate tools which can at least, help the real estate market deal with social distancing measures and creatively continue transactions.
The real estate market in Canada and the US is not likely to return to status-quo anytime soon, until at least 2022. This is due to factors like unemployment, possible foreclosure, and a likely extension of the lockdown period if a new wave of COVID-19 hits the world.