The global pandemic may have brought the Canadian real estate sector to a near standstill this spring, but over the longer term it appears to have stoked homebuying intentions.
It almost goes without saying that COVID-19 has had a far-reaching impact on the Canadian economy and healthcare system in the first half of 2020. As expected, the spring housing market was much cooler than 2019, with the Canadian Real Estate Association (CREA) confirming that May 2020 recorded the lowest volume of sales in May since 1996. Despite the significant drop in sales volume due to the pandemic, though, national home prices remained relatively stable.
After a quiet April, market activity began to pick up in local housing markets across the country in May: more buyers resumed their home searches, and more sellers began to list their homes. With more home buyers and sellers hopping off the sidelines, housing competition is starting to heat up in many regions. In Toronto and Vancouver—Canada’s largest markets—demand and supply were evenly matched in May, whereas in Southern Ontario markets like Ottawa and Hamilton-Burlington, buyers faced ever fiercer competition for available homes than last year. In Edmonton and Fraser Valley, B.C., on the other hand, demand and supply dynamics gave buyers in May marginally more leverage than sellers.
Given how swiftly conditions have changed and continue to evolve in housing markets across the country, prospective home buyers may be wondering: Is now a good time to jump into the market? Perhaps. With interest rates at historic lows, if you are able to buy and hold a home for the medium to long term, this might be a good time to buy. Here are all the factors you should consider as you make your decision.
Fourteen percent of current renters say they plan to purchase a home within the next 12 months, up from 7% reported in late 2019, according to new survey results released by Mortgage Professionals Canada.
The top reasons cited by renters for wanting to purchase a home include:
- 28%: “I want to live in a nicer home”
- 14%: “My home is no longer suitable”
- 14%: The current situation makes this a good time to get a deal”
- 12%: “Low interest rates make this a good time to buy”
- 11%: “I want to live somewhere less expensive”
The percentage of renters who say they would never purchase a house has also fallen by more than half, from 32% at year-end 2019 to 14% post-COVID. Among current homeowners, the results show 9% plan to buy within the next year, which is also up from 7% at year-end 2019. Study author Will Dunning, Chief Economist at MPC, admitted to being surprised by the results showing increased homebuying expectations for the near future.
“It is possible that the evolving emergency has caused more non-owners to decide that they want to buy homes (for example, to move out of an apartment building, where social distancing is challenging, to a lower-density environment),” he noted, while adding historically low mortgage rates are also making homeownership more affordable. Dunning did caution, however, that buying intentions don’t always fully translate into actual home purchases, for several reasons. “Some people, when they research their options, may decide not to buy,” he said. “Or, they might discover that because of the mortgage stress tests, they would be unable to obtain the financing they would require.”
Account for your finances and your lifestyle needs
For many Canadians, finances are just one part of the story, and the decision to buy a home often goes beyond the dollars and cents. To put it simply, people need to make changes in their lives and move—regardless of whether there is a pandemic or not.
If you have done the math and are confident about your financial ability to carry a new home, this is a great opportunity to take advantage of low interest rates. Consider why you want to buy in the first place. Perhaps you’ve had a relationship or family change; a divorce or a baby on the way are common reasons people choose to move. Alternatively, do you want to be closer to family, in a good school district, or have better transit access? If you started planning a move before the pandemic, consider whether and how COVID-19 has altered these priorities.
Once you’ve determined why you need to move, consider how your lifestyle needs may evolve. After all, you will be living in the home you purchase for at least a few years, so you need to think about whether the home you buy is a fit for your needs both today and tomorrow. If you can find what you want, in the location you desire, and are comfortable living there for at least five years, take the leap.
Get local with market data - Get hold of a REALTOR®
When you’ve made the decision to move forward with a home search, you’ll likely (and should!) turn your attention to how the housing market is performing. After all, buying a home is a major personal commitment, and also one of the biggest financial investments most people will make.
With everything going on, in addition to sales updates from national and local real estate boards, a number of Canada’s most established financial institutions, economists and housing corporations have attempted to predict the size and duration of the impact of COVID-19 on the housing sector.
Expectedly, no two forecasts are the same, and this goes back to how unprecedented COVID-19 is. For example, the Canada Mortgage and Housing Corporation (CMHC) predicted the housing market will see a historic recession in 2020—with sales volumes dropping between 19% and 29% and prices declining between 9% and 18% from pre-COVID levels. On the other hand, TD Bank’s late-April report noted home prices in Toronto could rise 8% by year end.
While high-level data from real estate boards and financial institutions can provide valuable perspective on how the housing market is performing at the macro-level, real estate is hyper-regional, and in many respects, local. The type of property, the neighbourhood you’re interested in, and your budget will all play a role in the level of competition you’re likely to face and ultimately the price you can expect to pay. For example, high level data shows that real estate is quite competitive in several areas of Southern Ontario, as noted. Within these markets, however, the first-time buyer category in particular—where homes are priced under $700,000—is the busiest, whereas competition for homes at higher price points is a lot calmer.
Working with a real estate agent you trust is one way to cut through the noise and understand how far your dollar will go in real estate based on your situation and your needs. A good real estate agent acts as a trusted expert who can provide you with the facts, data and insights that are most relevant to your purchase decision, so you can make an informed choice that you are comfortable with now and in the future.
Ask prospective agents questions like, “How well do you know this area?” and “How many homes have you helped sell or purchase in this area in the last year?” to get a gauge on their local expertise. Asking how much of an agent’s business comes from referrals is also a good way to understand how successful they are.
Remember that real estate is a long-term decision
Finally, remember that real estate is a long-term investment. If you are looking to make short term, speculative investments, this is a particularly risky time to do that in real estate (and otherwise). Further, churning real estate has real costs that eat into any sale price, which include but aren’t limited to land transfer taxes, realtor professional fees and moving costs.
Once you’ve carefully weighed your personal needs against your financial appetite and obligations, and have also considered the context of the real estate market in your area, take the plunge if you’re confident that everything lines up. If you can buy and hold for the long term, there are some great pockets of opportunity out there.
Existing Home Owners
For existing homeowners, their biggest motivator for wanting to purchase a new home is that their current home is no longer suitable (38%), whether due to size or location. Another 13% said they want to live in a nicer home, while 12% cite low interest rates.
The report further explored reasons why respondents said their current dwelling is not suitable, the majority of which are directly related to the lockdowns in place earlier in the year:
- “Spending more time at home means I need more space”
- 31% for owners and 33% for non-owners
- “The space isn’t conducive to the inclusion of a dedicated work area and can’t be or isn’t easily modified”
- 17% for owners, 24% for non-owners
- “When quarantined, the property doesn’t support my mental health or provide enough outdoor space”
- 14% for owners, 17% for non-owners
- “I need to live somewhere where social distancing is easier”
- 9% for owners, 7% for non-owners
Additional Mortgage Consumer Trends
Here are some of the other key findings from MPC’s report, Rapidly Evolving Expectations in the Housing Market:
- House price growth expectations
- They’re the “smallest we’ve ever seen,” the report noted
- Canadians’ confidence in their ability to weather a downturn in the housing market
- Unchanged from pre-pandemic results, at a score of 6.91 out of 10, with 10 representing strong agreement
- How Canadians view their homes
- They predominantly see their homes as a place to live (75%), and to a lesser degree as an investment (25%)
- Is now is a relatively good time to buy?
- There was a slight rise in the score among homeowners, but a more significant rise among non-owners, from a negative score of 5.23 at the end of 2019 to a positive score of 6.28 in this survey
- Interest rate expectations
- Responses in previous surveys “always show an expectation of rising rates”
- The latest response “might be the lowest ever recorded by this survey”
- COVID-19 impacts
- 20% of homeowners reported impaired income due to COVID-19
- 68% of first-time buyers and 75% of repeat buyers said they would have no difficulty making their mortgage payments
- 1% of first-time buyers said they would only be able to make partial or infrequent payments (vs. 0% for repeat buyers)
“What we have seen clearly is that the vast majority of homeowners are not feeling a long-term financial impact related to COVID-19, and that potential homebuyers are still very much in the market for a home, signs of which are being seen in regions across the country,” said Paul Taylor, President and CEO of Mortgage Professionals Canada.