Real estate expected to rebound after crisis
Pandemic will be ‘tough but temporary’ blow to the market, economist says
Even as COVID-19 pushes Toronto-area home sales off a cliff, real estate experts say that while prices may stall as people stay home, they will pick up where they left off once the crisis passes.
No one disputes the virus’s unprecedented shock to the economy, but how long it lasts depends on how long the market is in lockdown, said Royal LePage CEO Phil Soper.
“Typically if a crisis is shortlived, it doesn’t have an impact on the overall price of homes, other than price appreciation slows down,” he said on Thursday.
For now, the pause in activity has taken the froth off the market.
“We were highly skewed to a seller’s market in the first quarter. Without this health crisis I could easily have foreseen 20 per cent year-over-year price increases. It was that kind of environment — very much like 2016,” Soper said.
On Friday, the Toronto Regional Real Estate Board (TRREB) confirmed what realtors and economists were expecting — more than half, 58 per cent of the 4,643 sales in March — took place in the first two weeks of the month. That was a 49 per cent higher yearover-year rise.
But in the post-COVID-19 weeks, which the board considers to be the period after March 15, sales dropped to 15.9 per cent below last year’s level.
Still, home prices continued to rise, ending last month at $902,680 on average for all kinds of homes and condos — up 14.5 per cent year over year. But the gains were stronger in the first half of March when prices grew 16.8 per cent, compared with only 10.5 per cent year-over-year in the post-COVID-19 period.
TRREB, which had been projecting 10 per cent price growth in the GTA this year, said it will update its forecast in mid-April when it has more data.
“If we see a peak in COVID-19 infections in the spring followed by a loosening of social distancing measures starting in the mid-to-late summer, then we could see a strengthening in the demand for ownership housing throughout the fall and into the winter,” a real estate board press release said.
A return to work amid low mortgage rates would fuel recovery, it said.
The fiscal stimulus that is barely visible to consumers now will kick in, Soper said.
“Sellers will simply pull their homes off the market,” in the meantime, he said. “They’ll say, ‘This too shall pass and I’m not willing to let my asset go at less than market value.’ ”
Lauren Haw, CEO of online realtor Zoocasa, also sees the current situation as a pause similar to the one in 2017 when governments imposed policies to try to cool the heat in the Toronto and Vancouver markets.
“People with houses will go into a stalemate. If prices look like they are going down at all, a lot of people who own houses won’t put them up for sale, which is why we didn’t see house prices drop and through that time condo prices had growth. I just don’t think we’re going to see houses in Riverdale and High Park dropping any time soon,” she said.
Haw is watching to see whether there is an inventory injection from homes that were previously used as Airbnb rentals. Because of fears about collecting rent during the COVID crisis, many of those owners are looking at putting the properties up for sale rather than renting them as long-term leases, she said.
When sales plunge 50 per cent overnight, there will inevitably be a price blip, said Christan Bosley, chief operating officer of Bosley Real Estate, who compares the market conditions to a natural disaster.
“We know every property on the market right now is in a critical situation to sell,” she said.
“We see some properties selling very quickly — one day on market, no showings, conditional on viewing the property after — 50 per cent are still going over asking. The other 50 per cent are sitting.”
Bosley said the biggest drops will be in areas where historically prices have been inflated, places like Leaside, North Toronto and other higher-end markets.
“Those markets are going to take a hit, no question. But is it going to be a long-term hit? If I had to guess, no,” she said.
Bosley said she expects there’s a 60-40 chance the crisis will end in recessionary conditions. But there will also be a cohort who are waiting to buy with access to low interest rates.
That’s because realtors aren’t doing in-home showings except for clients who need to buy or sell for financial reasons.
“Even though we have been declared an essential service that does not mean we are business as usual. We are in an industry where the public is watching us very closely and we need to be respectful of people’s health and well-being,” she said.
By the time the dust settles, Canada could see re-sale home transactions plunge 30 per cent to a 20-year low and the first nationwide drop in prices since 2009, according to the Royal Bank of Canada.
Robert Hogue, senior economist at RBC, said the pandemic will be a “tough but temporary blow” to the national housing market.
He sees a recovery coming in stages as buyers take as much as a year to regroup and rebuild confidence amid high unemployment. That means home resales will dive to 350,000 units, he said. Prices will fall briefly over the second half by an average of 2.9 per cent from the year before.
How quickly employment picks up will be key. Already, 1.55 million Canadians have applied for unemployment insurance since mass lockdowns began this month.
“The best-case scenario is we see an improvement in activity in the fall. I don’t think anyone’s really expecting anything before that,” said John Pasalis, president of Toronto’s Realosophy brokerage.
“People who own houses won’t put them up for sale, which is why we didn’t see house prices drop.” LAUREN HAW CEO, ZOOCASA