Covid-19 Impact on Real Estate?

Covid-19 IMPACT ON THE REAL ESTATE MARKET?

The last year has been unprecedented in so many ways, making any predictions about the future of the market highly risky.    No one saw COVID-19 pandemic coming, and in the aftermath of the early lockdowns, economists were nearly united in their expectation that the real estate market would decline in 2020.     Meanwhile, the market remained blithely unconcerned about the economist predictions and sales and prices rose at a rapid (and accelerating!) pace.  So what does all this mean for 2021?

Let’s reflect on the factors currently driving the market.    During the lockdown, many condo dwellers found themselves frustrated by the limited space available and felt an urgent need for more space, as well as a belief that working from home was a trend that was here to stay.    Meanwhile, potent action from the government of Canada had driven down interest rates, allowing home buyers to qualify to purchase substantially more expensive properties.  And thus began the Great Exodus, with many leaving the City for detached homes or townhouses in the suburbs…

But there was a problem: Covid-19.   Because of the time of the year, and because many potential sellers were reluctant to open their doors to buyers, there were far more buyers in the market than sellers.   Properties that had languished for months suddenly found buyers, and virtually every new listing enjoyed multiple offers.   Meanwhile, positive news coverage of the recovery in the real estate market brought in even more buyers driven by FOMO – the Fear of Missing Out.   The strength in suburban detached housing is rapidly spreading to other markets and housing forms as a result.

Which brings us to the crucial question:   going forward, is the Covid-19 vaccine going to bring more listings to the market than there are buyers?  Canadian Real Estate Association (CREA) economist Ryan Biln remarked “we could see more listings hit the market after a vaccine is successfully introduced if more home owners feel comfortable having buyers walk through and view their homes”.  However, the vast majority of the sellers are also going to buy, fuelling the demand.   The vaccine may also open the door to the return of the international buyer, many of whom see Canada, and Vancouver in particular, as a very desirable place to live, further driving demand.  So while no one can know for sure, there seems a strong likelihood of the market continuing to rise.

It’s also possible that the current trend of moving to suburban detached homes will reverse at some point.  As CREA economist Shaun Cathcart remarked, “A two-hour commute is a lot if you do it every day, but not so much if you do it once a week.”   People clearly believe that the trend of working from home is here to stay – but is it?   Or will the Covid-19 vaccine bring about a return to the office?

IMPACT ON INTEREST RATES?

In October 2020, the Bank of Canada said it expected interest rates to remain low for at least the next three years.

A vaccine will not change this overnight, say CREA economists.

“[A vaccine] is positive economic news for sure, although we’re a very long way away from a return to normalcy and it’ll take some time for people to start feeling confident again. It’s more than likely households will want to hold on to more precautionary savings than they would have prior to the pandemic. This means interest rates will remain low compared with historical levels for a long time yet,” said CREA economist Doug Blissett.

It’s possible interest rates will slowly rise if inoculation is successful, said Biln.

“If the vaccine is rolled out properly and is successful throughout the next two years, the government can focus all of its efforts on policies that promote economic growth and getting Canadians back to work,” says Biln. “The Bank of Canada has indicated if economic conditions do improve, interest rates could start rising in 2023.”

Try our Mortgage calculator to see how much your rate will be for different interest rates.

Check our other blogs under Real Estate News – that might give you answers about buying or selling a home.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.