Alarmism in the Real Estate Market and the Perspective of Real Estate Giants
Earlier this year, a number of physical distancing measures were put into place. This was followed by business closures and sharp declines in employment numbers across different provinces.
While almost every sector was impacted, the Canadian housing market proved to be exceptionally resilient.
So, what really happened Post-COVID-19 in the real estate market?
As expected there was a slight slowdown in the summer months but after that, it seemed like the real estate market was all set for a revival.
In fact, in September, the Teranet–National Bank National Composite House Price IndexTM was up 1.1% from the previous month. This represents the second-biggest gain for the month of September in 22 years!
Additionally, the indexes for all of the 31 metropolitan markets surveyed were up during the month.
Similarly, construction activity also seems to have returned to pre-pandemic levels. Annualized housing starts increased from 226,000 in August 2019 to 262,000 in August 2020. This is the fastest pace of homebuilding seen since 2007.
Home resales also increased as the economic activity resumed in the late summer months. According to an RBC report, as of October 2020, home resales were about 23% to 37% above year-ago levels, with single-detached homes continuing to attract huge interest from buyers.
What do the analysts say about the future outlook?
Analysts from organizations like the CMHC and Moody’s seem to suggest that this vigour in the market may be short-lived.
Analysts are of the opinion that fiscal stimulus measures, mortgage deferrals, and unprecedentedly low-interest rates have kept the market going throughout the pandemic.
Additionally, CMHC shares that a sharp pullback in new listings has led to low levels of inventory which is why there is upward pressure on house prices.
While things seem to be positive in the real estate market, at the moment, Moody’s Analytics suggests that unemployment, lower incomes, and a rise in delinquency rates will start to impact the market in 2021.
Additionally, a decrease in migration to Canada, due to COVID-19, will also negatively affect housing demand.
Moody’s Analytics expects the Canadian house prices to suffer a peak-to-trough decline of around 7%. While the report suggests that all regions will experience price declines,
the speed of the drop will vary from province to province.
CMHC echoes these sentiments and adds that moderate evidence of overvaluation can be seen at the national level when it comes to the housing market.
The report from CMHC goes on to state that the rising imbalances in some local housing markets and the general weakening of housing market fundamentals are bound to lead to vulnerability in the Canadian housing market.
Is this alarmism justified?
Well, real estate companies definitely don’t think it is.
Real estate giants have been sharing figures that seem to defy these theories. For instance, in the GTA, the sale of new homes was up by 217% in August! This is 110% over the 10-year average.
RE/MAX anticipates the Canadian housing prices to increase by 4.6% this quarter. The market sentiment has been so positive that the company revised its original prediction of +3.7% at the start of the year.
Similarly, Royal LePage confirms that the demand continues to remain high. Their House Price Survey and Market Survey Forecast shares that the aggregate price of a home in Canada increased by 8.6% year-over-year to $692,964 in the third quarter of the year.
About 95% of real estate professionals at Royal LePage shared that detached houses in their regions were receiving multiple offers.
So, real estate companies remain optimistic despite seeing some not-so-optimistic predictions by analysts. While we all know that the Canadian real estate market has proven to be resilient, against all odds, we will have to wait just a little longer to see what new challenges 2021 may bring.
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