Canadians are about to get an update on the state of the housing market and the latest resurgence of COVID-19 has only added another layer of confusion to a year of uncertainty over where real estate prices will go in 2021.
On Tuesday, the Canadian Real Estate Association is expected to roll out its latest sales figures and prices for resale homes, and while most property watchers see a continuing short-term trend of weakening high-rise condo prices and increasing low-rise prices, the longer term impact of the pandemic remains far less certain.
An informal sampling of economists who keep an eye on the residential real estate market shows a range of views based on considerations related to how long the impact of the disease will last, including rock-bottom borrowing rates and whether buyers will continue to bid up the price of low-rise homes most in demand.
When it comes to residential real estate, price changes have a big effect on ordinary people for whom a home is a place to live, not just an investment. But even then, for most people a home remains their largest lifetime purchase. And unlike other investments, managing real estate is relatively complex and demanding.
Unintentional landlord
When Anna Blackwell and her husband bought a two-bedroom downtown condo in 2016, the Wilfrid Laurier University political science grad had no intention of becoming a landlord. But after one of the pair was offered a transfer to Portland, Ore., the couple decided to rent out their Toronto home — at least until they knew if the move stateside was going well. In September their tenant gave notice and, at the end of November, moved out.
“We were quite shocked when we found out how much lower we’d have to list to get our place rented in this competitive market,” Blackwell said in an email conversation. The property that had been earning $3,150 a month was now generating $2,600.
Falling rents have been good for tenants. And though the decline hurt, it was by no means devastating for Blackwell, who bought four years ago in a sharply rising market. But as the business news service Bloomberg pointed out last week, property investors taking possession of condos they signed up to buy when the market looked hot, are now caught in a bind — having to accept losses on rent or a loss when they sell.
Investors who signed up to buy condos when the market looked hot are now caught in a bind — having to accept losses on rent or a loss when they sell. (Don Pittis/CBC)
The decline in rental income and property prices did not come as a surprise to Ben Rabidoux — who runs North Cove Advisors, an information service for the professional residential real estate market — and who predicted the current shakeup in the rental market back in April. He suggested a sharp fall in demand, accentuated by what some saw as an excess of high-rise construction in some of Canada’s hottest markets, would translate into declines in sale prices if the effect of the pandemic lasted more than six months.
Blackwell was lucky to get a tenant for her Toronto condo. Other reports say vacancies have risen so much that speculators are moving to buy rental buildings, hoping to upgrade empty flats and charge more once the market bounces back, since in many markets empty flats are less affected by rent controls.
Although based on U.S. figures, data from Pew Research shows that, as the economic effects of the pandemic continue, more young people are living with their parents than at any time since the Great Depression. That was only one of the reasons, including a plunge in immigration and a decline of temporary residents, including foreign students, that Rabidoux cited for the falloff in real estate demand.
Like the rental speculators, economists representing real estate businesses and experts in the banking industry almost universally express confidence that declines in the condo market are temporary and that markets will get back on track once Canadians are vaccinated.
Many say that outside crowded city centres, demand for housing in suburbs, smaller cities and rural areas will only strengthen. BMO economist Jennifer Lee suggests buyers will continue to look for more space in a work-from-home boom which may not end with the pandemic.
“Instead of taking the train in, you can go a little further away now where real estate in the past has been cheaper,” said Lee.
Going a little further away
Carl Gomez, Canadian chief economist for the U.S. real estate data giant CoStar, agrees that rising house prices in big cities will continue to push up demand outside the urban centres. But he is less confident that pent-up demand created by low rates during the first lockdown can persist at the same rate.
On Friday, Statistics Canada released new data showing that consumers were back on a borrowing binge, and that demand for mortgages and housing investments hit an all-time record during the three months ending in September. Data from Vancouver and Toronto real estate boards earlier this month hints that, for now, that rush to borrow continues.
But Gomez says inner-city markets like Toronto have seen a glut of what he calls “shoe box condos” favoured by investors — not to live in or even necessarily to rent, but because they have been steadily increasing in value.
“I question whether that demand is going to be there in the long run,” he said.
The long term really matters for the homes we buy to live in for decades at a time. And while high levels of immigration have helped push up demand in recent years and falling interest rates have helped lift prices, not everyone is convinced those two things are going to continue.
Many suggest demand for housing in suburbs, smaller cities and rural areas will only strengthen as people look for more space in a work-from-home boom which may not end with the pandemic. (Don Pittis/CBC)
Economist Moshe Lander is one of those willing to say some of the things that people in the property business would just as soon leave unsaid. Landerworries the pandemic could signal a demographic turning point in the market.
“No matter how much immigration we have, there’s not enough incoming demand for housing in whatever form,” said Lander, citing Canada’s aging population and low birth rate. “It’s just not the great investment that it used to be.”
He said that people in Alberta and those who invested in Toronto condos are getting a little taste of a market that does not reliably rise month after month and year after year. And he warns that today’s attractive interest rates, now as low as one per cent, may end up having a distorting effect because there is no way they can last over the life of the mortgage.
“[Home-buyers] could find themselves very quickly sitting in a situation where the real value of their debt hasn’t been eroded by inflation,” said Lander, “and they are now facing higher interest rates with very little equity built up in the home, especially if house prices don’t rise the way they used to.”
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
