Year in Review – Part 2: The Real Estate Industry
When the pandemic began, real estate was probably one of the most talked about sector.
Were prices finally going to take a hit? Would people move to the suburbs? Will the housing supply drop?
Observers, analysts, and industry experts all had different opinions on what the impact of the pandemic was going to be on real estate.
So, what really happened?
Well, the real estate market has proven to be quite resilient. Monthly registered residential sales value has steadily increased from $7.83 billion in February 2020 to $17.34 billion in August 2020.
In 2020, we also saw a complete reversal of the usual housing market sales trend. Typically, we see an upward trend in the spring and early summer months. However, due to COVID-19, there was a drop of about 11%, with sales picking up in late summer.
According to RBC, a reduction in COVID-19 cases and the easing of social-distancing measures led to a recovery in home resales in June, with sales increasing 63% from May, and 15% year over year!
One of the biggest developments, that helped the real estate market gain the lost momentum is the decision taken by the Bank of Canada to lower its target for the overnight rate to the effective lower bound of 0.25%.
Earlier this year, the Bank announced that it was putting extraordinary monetary policy measures in place to support Canada’s economic recovery. It has also hinted that the interest rates will remain at this effective lower bound until economic slack is absorbed and the 2% inflation target is sustainably achieved.
This has led to banks offering incredibly low mortgage rates. For instance, just recently, HSBC has lowered its variable rate mortgage to 0.99%! This, according to industry experts, is the first time that the rates have gone below 1%in Canada.
Another interesting development in 2020 was that the first-time home buyer segment showed a noticeable increase in its share of the market from May to July. This could be due to the unprecedently low-interest rates. Additionally, these non-first-time home buyers also showed more interest in non-condo properties over condos.
As most people are now working from home, commute doesn’t seem to be the primary concern when opting for new homes. For instance, looking specifically at condo purchases, it is evident that there is a positive year-over-year change rate for condo property sales outside core areas such as Toronto, Ottawa, Mississauga, Brampton, and Hamilton. There has been an increased interest in areas such as Kitchener, Guelph, and St. Catharines.
Real estate companies in Canada are positive that the housing market will grow in 2021 too.
RE/MAX Canada, for instance, is anticipating healthy housing price growth in 2021. Steady demand and an ongoing housing supply shortage is the reason why the company is expecting a 4 to 6% increase in the average residential sales price nationwide.
It also shares that there is optimism in the market, with 52% of Canadians eyeing real estate as one of the best investment options in 2021.
While most signs indicate positive growth in the real estate industry over the next few months, particularly as vaccines get approved and interest rates continue to remain low, things can change. At Teranet, we continue to monitor the factors that impact the real estate industry, to help you stay abreast of all the key developments.
This is the second part of our year in review series. Click here to read our analysis of the financial industry.