COVID-19 crisis forecast to drag housing market
Economist believes decline will occur through spring and even into summer
Social distancing advisories and the potential for lockdowns in major urban centres across Canada due to the novel coronavirus pandemic are likely to sideline homebuyers and put a damper on the traditionally hot spring real estate market, some experts are predicted.
“We are coming to the view now that because of the virus and the meltdown in financial markets, we will mostly likely see a decline in buying activity through at least parts of the spring market, and maybe even going into the summer market,” said Robert Hogue, senior economist at RBC Capital Markets.
The forecasts come even though the Bank of Canada slashed interest rates by 50 basis points just last week, pushing down mortgage rates, and many expect the bank to cut again.
Hogue believes the negative effect that COVID-19 will have on Canada’s economy, coupled with restrictions in movement and self-isolating measures, will not only deter buyers, but make them more cautious in terms of how large a mortgage they will take on.
“With the threat of the recession, you might see more reluctance on buyers to take on bigger amounts of debt even though the drop in interest rate will allow them to borrow more,” Hogue said.
In downtown Toronto, real estate brokerage Realosophy Realty has already started to see an uptick in inquiries from panicked sellers concerned about the value of their homes declining if offers cease to pour in like they once were.
“Up until three days ago, this virus was having no impact on the housing market,” said John Pasalis, president of Realosophy.
“Then suddenly, we start getting all these calls, people sounding anxious and wondering what their next move should be.
“I got a query from a couple who are worried about their pre-construction condo and are wondering if they should assign it.”
Janet (not her real name), a 33-year-old living in a two bedroom condominium in downtown Toronto, had been hoping to upgrade
I’m just going to have to wait it out, unless home prices drop.
to a home, partly relying on investments in her TFSA.
But the market crash has severely disrupted her plans of upgrading — she told Postmedia she had lost about $14,000 that she was counting on for a down payment.
“I’m just going to have to wait it out, unless home prices drop. So I’m just not sure,” she said.
Pasalis said he had heard anecdotal accounts of homes in Toronto selling within a day for up to 40 per cent more than their listed price after receiving a frenzy of overpriced offers. He predicts that if an increasing number of people get ill, or know friends and family who are ill and abide by strict self-quarantine measures for the next few weeks, the number of offers on homes would dramatically decline.