THE PANDEMIC HAS MADE OUR HOMES MORE THAN JUST A HOME.
HAIDER-MORANIS,
The rapid increase in Canadian housing sales and prices has proven to be a mixed bag for an economy trying to crawl out of a pandemic-induced slowdown: it simultaneously indicates both economic resilience and anguish for those who have been priced out of home ownership.
The latest housing numbers released by the Canadian Real Estate Association (CREA) revealed that year-overyear sales in March were up 76.2 per cent and prices were up 31.6 per cent.
Remember, though, that a year-overyear comparison might overstate the gains, because the economy in March 2020 was placed in a lockdown by mid-month. Still, the sustained monthover-month growth for the past several months has many wondering how long this bull housing market will last.
Earlier forecasts of a drastic decline by the second quarter of 2021 have proven false, but this does not imply that housing prices are guaranteed to appreciate 30 per cent or more again next year, as they have recently in some suburban markets and small towns, mostly in eastern parts of Canada.
Any forecast for 2021 must consider what is driving the exuberance in the housing market. The oft-cited drivers include high demand, low supply (new listings have been below their long-term average) and ultra-low mortgage rates, which allow homebuyers with a steady income to borrow larger amounts. Lenders are also keen to invest in housing, because institutional investors have limited alternatives given the sluggish economy and large public-sector outlays.
What is missing is the realization that the utility offered by dwellings has considerably increased since the onset of the pandemic. Homes are no longer just a place to retire after work and sleep. They have become workplaces for millions of people during COVID-19, daycares for their young children and schools for those who pursue online learning, either by choice or force.
Even before the pandemic, basements had transformed into home theatres, man caves and gyms. Furthermore, the backyard patio is now a replacement for the restaurant patio, and the porch is the last step in retail’s last mile.
No wonder, then, that the demand for ground-oriented, large-sized housing has increased in the past 12 months much faster than for other housing types.
Today’s housing prices reflect the added utility that homes have been providing since the start of the pandemic. Apart from the usual supply and demand drivers, housing as an asset has become far more valuable during the pandemic than before, hence the rapid appreciation in valuations.
Economic fundamentals suggest that housing prices cannot continue to march out of step with household incomes, even if larger-sized dwellings have become more valuable now than before. The 30-plus per cent year-overyear increase in prices in places such as Barrie, Cambridge, Hamilton, Niagara and Georgian Bay in Ontario is partially because these places had not appreciated much in the years before the pandemic. Also helped is their proximity to the Greater Toronto Area, Canada’s largest employment market.
Supply in the past two months has increased to the point where the national sales-to-new listing ratio (SLR) declined to 80.5 per cent in March from a peak of 91 per cent in January 2021. If new listings continue to outpace sales for the next few months, price appreciation is likely to moderate. Still, a much higher influx of supply is needed for markets to return to their long-term average SLR value of 54.4 per cent.
Provincial real estate regulators could intervene to enforce some discipline in the real estate markets, and while no one likes more rules, here are a couple of recommendations.
First, in the absence of a higher bid, sellers must be required to accept an unconditional offer if it matches the list price. This is no different from buying a car, where the seller must sell if the buyer offers the asking price.
Secondly, greater transparency is needed in multiple-bid situations where buyers have to bid or revise their bids higher without knowing what others have already bid. Provincial regulators should make it so that sellers or their agents must disclose the bid amounts to prevent unnecessary speculation.
As for the buyers: beware. Don’t let the fear of missing out be the driving force in your decision-making. Also, ask your agents to only show those properties that do not have an offer date in order to avoid being part of bidding wars that few will win, and most will lose.