What’s the short-term future of residential real estate? We asked seven market experts
Despite a global pandemic, house prices in the notoriously durable residential real estate market have climbed upward for the past few months, much to the disbelief of some industry insiders. After all, horrific economic conditions should precipitate a decline in an industry that relies heavily on people investing fat sums of cash, right? That said, common sense would suggest that the housing market will inevitably correct itself, flatten out to better reflect the state of the local economy. We asked seven market experts whether a housing crash is on the horizon.
Roelof van Dijk
Head Canadian analyst at CoStar, a real estate analytics company
“I’m not anticipating a major downturn, but I do see some major warning signs with the supply and demand equation. When we look at unemployment, 1.8 million Canadians are out of work compared to four months ago. Some of them are homeowners and some are investors in residential real estate. Depending on which economic and employment forecast you’re looking at, there’s still going to be a lot of people who haven’t come back into the workforce by mid-2021. If that’s the case, once the government subsidies dry up—CERB and business loans—people will start to eat into their savings. Then they’ll start to say, ‘Okay, I need to sell.’ And I don’t think we’ve seen that pain-selling yet. But once that happens, that’s when we’ll see the market turn downward. It could potentially result in a supply and demand imbalance, people trying to sell their home and not enough buyers.
“There’s also the issue of delayed home ownership. People will need some time to get their finances back in order to afford a home and get their mortgage approved. The pandemic is causing people to delay getting married or having children, which are typically incentives to buy a property or move into a larger home. When these life stages are delayed, so are home purchases.
“Also, we normally get 100,000 new immigrants into the GTA every year. And whether they’re buying homes or renting, it’s a big boon to the housing market. But we know immigration is going to be down because international travel is down. You can’t move as freely as you were able to six months ago. That’s likely going to put a dent in home sales, too, over the next year or so. It will also slow down student and multifamily rentals.
“People have also been going to the bank to defer mortgage payments. But technically, they’re in default, even though there’s an arrangement with the bank. The Canadian Bankers association is citing that 24 per cent of Canadian households are in technical default at this point, because the homeowners have all asked for mortgage deferments. Many of these deferments are set to expire in a few months, at which point we’ll have a better sense of who can still afford their mortgage. Hopefully the economic rebound is strong enough and we don’t get a second wave.”
Chief market analyst, Toronto Regional Real Estate Board
“We started to see a rebound in home sales as we moved through May. I think part of that was because realtors and their clients were starting to take advantage of new technologies, live-streamed open houses and virtual showings. So, we did see an improvement in May and more so in June, as we moved into Stage 2. People seemed to be getting more and more confident that we were starting to move into a recovery period.
“Aside from a short blip as we moved from the second half of March to the end of April, the number of sales were relatively high compared to available listings. That means there was enough competition between buyers to continue to exert upward pressure on home prices.
“What we’re seeing through June and July are a lot of home buyers coming back into the marketplace. A good number of jobs that were lost temporarily came back. There was an extremely strong recovery there, according to stats Canada for June. When people are thinking about purchasing a home, obviously they’re making a substantial down payment, but they’re also looking at their ability to pay down a mortgage over the long-term. The more confident they are in an economic rebound, and the more stable their income, the more likely they are to consider a purchase. Because, obviously, if they’re confident in their job situation, they’ll want to take advantage of the low interests rates that are available to them right now.
“In our most recent market forecast update, right now, there’s a certain degree of recovery at hand. I think that would bode well for housing market conditions moving forward. In fact, consumer segments of the economy, like housing, have often been a leading indicator of recovery. And so, if you look at the kind of numbers that we saw in June, with an average home selling price of $930,869 and more than 8,000 sales, perhaps that points to improving conditions as we move forward.”
Author, financial analyst and former MP
“The current market sucks. Bidding wars. Blind auctions. Bully bids. Multiple offers. Prices rising double-digits. Many are incredulous how this could take place in the midst of a global pandemic with an emptied downtown core and a withering 13 percent unemployment rate in the GTA. Eight million Canadians have been on government pogey for four months, and the GDP has crashed the most on record. Yet when it comes to real estate, we’re partying like it’s 2017 again.
“The reasons are profound, and temporary. There was no spring market in 2020, since we were all supposedly going to die of Covid, and stayed home in our underwear. Hence a big pent-up demand once it appeared life was going to carry on. What normally happens in April, when people dive headfirst into the real estate market, this year took place in June.
“Second, money’s cheap. Ridiculously cheap. The major lenders are quietly giving mortgages for less than 2 percent on a five-year term. Even decade-long loans are 2.5%. As central banks rushed to rescue the economy from the pandemic, rates were slashed and billions were thrown at buying up mortgage securities. Liquidity is sloshing over the gunnels. As mortgage costs decline, of course, people can borrow more money on the same income. So they are. The fact we no longer have any fear of excessive debt is driving real estate higher, unwisely.
“But these things are temporary. The demand surge will temper. More properties will hit the MLS. Unemployment will stay elevated. Any economic or public health reversal now could make those who overpaid in June regret things in November. But the likelihood of a crash is basically zero. If this were Calgary or Kelowna or Windsor, a protracted period of decline would be no surprise. Lots of places in Canada will have problems for the next couple of years. But the GTA will fare better, because of a highly diversified local economy, the financial core, migration and a six-million-strong market. No, no crash – which we’d define as a 20% price correction. But this does not mean a rosy market, either. There are several worrisome trends.
“After this little boomlet, it’s reasonable to expect a far different market to emerge. As mentioned, swollen unemployment is not going to shrink anytime soon. It will be well in 2021 before we get back to the levels of February 2020. Second, a serious number of people deferred mortgage payments, ending in the next few months. An unknown number will still be without work and forced to sell, so more listings. Also, many coming up for renewal may be unpleasantly surprised at the reception they get from lenders who were just denied six months of payments.
“And big troubles with condos. Airbnb has collapsed. Pre-virus, the GTA had over 21,000 short-term rental properties. Hundreds of those have been hitting the market lately, with thousands more to come. Add to this the 15,000 units coming available as new construction is completed over the next two years. Supply will overwhelm demand. This is why condo prices and rents will decline, pulling the entire market back.
“Finally, the virus. It freaked out millions. No surprise that detached sales in 416 have actually declined while those in 905 have jumped. People want backyards. Front doors to the street. No elevators or garbage rooms, corridors or parking garages. Besides, Covid showed that a lot of companies can function perfectly well with employees working remotely. So no need to spend three hours a day on the QEW and Gardiner Expressway. The ‘burbs are suddenly sexy.
“If there were a second wave, however, it would hit the market like an asteroid. Combine that with joblessness, more shutdowns, the condo plop, mortgage deferral cliff, CMHC rule tightening and more risk-averse lenders—and the market would be a smoky hole in the ground for at least a year. Until the vaccine. But why would a second surge happen? We’re all wearing masks now. Leaping off the sidewalks for each other. Lining up like ducks at the grocery store. Washing hands all day and bathing in sanitizer. This is not March. The authorities are not going to lock down society or turn off the economy again. If infections rise and hotspots develop, so be it. The virus risk ain’t going to zero. It never will. And it will be a long, long time before the herd is dosed and social distancing ends.
“Overall, the best time is to buy a house is when you need it and can truly afford it. And the worst time to do that would probably be now.”
Assistant professor, Ted Rogers School of Management, specializing in the impact of Covid-19 on the economy
“I was surprised at how the housing market responded to the pandemic. In March and April, I was very pessimistic and thought the market would correct. But, surprisingly, it’s been resilient. I think Covid-19 created a lot of confusion in people’s minds. They thought it was going to cause a huge economic catastrophe and a lot of people were going to lose jobs. People did lose jobs, but mainly, those were in lower-income positions. The fallout has not really impacted the high-skill labour sectors, like finance and technology. Thus, the market has been able to starve off a potential sell-off and homeowners have been able to hold on to their real estate assets.”
“Interest rates have been pretty low. They’ve actually gone even lower because of Covid-19, because the Bank of Canada reduced the interest rate. What we’re seeing is that people are taking on more debt and they’re buying bigger houses in suburbia. This is where the condo market is getting hit. Even if you look uptown, at Yonge and St. Clair, for instance, you’re seeing a softening of demand. It’s because people are saying, ‘You know what, instead of paying $3,000 a month, we can get a bigger house or an apartment further north. And if I’m going to be working from home, why not?’
“The other wild card is how much government intervention will continue in the market. CERB, for example, really helped cushion the economic impact. If there wasn’t a CERB, maybe there would have been a correction. The government also intervened very aggressively when it came to mortgages. So, the bank of Canada is continuously pumping millions into the mortgage market, for example, through the purchase of Canada mortgage bonds. That’s assured the banks, who haven’t been that restrictive in lending, which they probably would have if there was no help from the government.
“The one advice I would give to buyers and sellers: be very cautious. You don’t want to get into a position where you say, ‘You know what, things are back to normal.’ I would be very careful about overbidding at this point because what typically happens is when people hear positive news, they become overly optimistic and they go and overbid. Think about your month-to-month budget. Always have a cushion in there. You don’t want to be underwater when it comes to house financing.”
Principal market analyst for the GTA, Canada Mortgage and Housing Corporation
“Crash is a big word. In terms of a crash, that would imply bigger issues—particularly a glut in the supply of units, developers unable to sell them—we don’t anticipate such an extreme impact. That being said, we’re expecting declining average house prices and a recovery by mid-to-late 2021. The biggest concern we have is an increase in supply that leads to a reduction in price growth. Toward the end of last year, we saw some regulator changes in Mississauga and Oakville, where they introduced restrictions on short-term rentals. Before, people were renting out investment properties, but now short-term rentals are restricted to principal residences, which led to an increase in condo listings. A lot of those regulator impacts will be felt this year and, as people sell their short-term rental properties, it’s going to inject more supply into the market.
“I would say that our biggest concern is uncertainty. We don’t know how the pandemic will end. We’re always hoping for the best, and that’s why we always give these two scenarios: the worst-case versus the best-case scenario. Best case is that we get out of this pandemic and we don’t have a repeated, prolonged lockdown and people are able to go get back to work, life resumes to some sort of a new normal. Worst-case scenario? There’s no vaccine. We have a repeated resurgence of the virus. We have a next phase, where we go into prolonged lockdown, people can’t work, have to stay home, everything is shut down and really the worst case that we don’t get out of it.
“From March to May, listing prices held steady. I was quite surprised by some of the numbers when they came out. But we were only looking at a fraction of the typical volume of sales. Personally, I wouldn’t read too much into these data points for the last three months. The market was on pause, we only saw a little bit of activity and it’s hard to make an analysis based on small volumes, maybe a quarter of the typical volumes that you would see for a month. It’s not really speaking to how the typical behaviour of a market would be. In June, yes, sales activity returned to some sort of normal, due to pent-up demand that accumulated during the three months prior. We had a lot of people that needed to buy a house and waited on the sideline. I would wait until about fall, particularly once we see a lot of the fiscal stimulus packages ending and how that’s going to play a role in purchasing power and incomes. Hopefully, a lot of the layoffs and those folks that have been furloughed, they will be able to go back to their jobs or find new jobs. There’s a lot of noise out there. Everybody is saying, ‘Well, the market really hasn’t suffered. We’re seeing these numbers that show we’re back to normal.’ I would wait a little longer to see how this whole things plays out.”
Executive vice-president and regional director, RE/MAX of Ontario-Atlantic Canada
“I don’t think the market’s going to crash. Absolutely not. The summer’s going to probably shape up with more of the same—with prices staying steady—in the detached segment of housing. The agents that I speak to in our network and from other brands are saying that their clients aren’t worried about a second wave or the bottom falling out. So, there’s strong consumer confidence right now. The recent move into Stage 3 will boost it even more. I think a lot of people are concerned about when mortgage deferments end. What’s that going to look like for the market? But there’s still so much demand for housing right now that even if we do get a flood of inventory into the market, that demand is going to sustain price levels. What happens once the business subsidy runs out is a bit of a concern, but when it comes to people who are on CERB, they aren’t typically homebuyers.
“Inventory is the real challenge that we’ve had for the last couple of decades, and Covid has really tightened that up to extreme levels. There’s a very low number of listings available. A lot of people sold their homes in the first quarter and needed to buy something so they had a place to live in the second quarter. So, there was a flurry of activity that put immense pressure on pricing. I think that will calm down, but I’m confident in the long-term durability of the market.
“More and more sellers are gonna list their homes. People who have been thinking of moving and are paying attention to the market are probably rushing to get their homes on the market as soon as they can, so they can capitalize on the intense demand we’re seeing. That won’t create a surplus, necessarily, because there’s still an abundance of buyers and sheer demand in the freehold sector. A common theme has been that a home is more important than ever in the Covid era. Freehold typically offers you more space. That’s what people seem to want right now.
“The condo market, on the other hand, that’s getting into balance, meaning demand is dropping. It will probably end up a buyer’s market come September. The short-term rental market, which is predominantly condos, has been impacted by Covid. Airbnbs were just wiped out. If you don’t have the means to carry the property without renting it, chances are you’re putting it on the market and trying to sell it to offload your expenses.”
CEO, Ontario Real Estate Association
“I think the greater risk than a crash is an affordability crisis, meaning even people with decent income can’t afford to buy a home. Many people have now spent four months cooped up with their family or in a small rental, putting a maximum stress test on their homes. OREA has been doing monthly polling about consumer perceptions in the real estate market. They show a strong desire to move, with one out of four buyers looking for more space than they had pre-pandemic and they want home offices and backyards. So, if the government wants to avoid an affordability crisis, they need to get more supply into the system. They could do that with a land-transfer tax holiday and by speeding up the approvals process for new homes, to give greater choice and more affordability.
“I believe that cities are going to continue to grow and flourish. There was a lot of speculation after 9/11 that large cities would see people flee. I suspect the same around the Spanish Flu, 100 years ago. But after short-term turbulence, people continue to want to live in cities, not only for employment reasons, but also because of great culture and the proximity to so many desirable amenities.
“The government can play a key role in ensuring a healthy, thriving real estate market. In fact, government can help real estate be an engine of growth for our economic recovery. One of the reasons people don’t move is because they get punished with a massive land-transfer tax in Ontario, particularly in Toronto, with the double land-transfer tax. If the government were to do away with that tax, both provincially and in the city, that would bring more housing supply into the market, would help keep price increases under control and would have an explosive impact on our economic recovery and employment figures. For every home purchase, there’s about $80,000 in spin-offs from furniture, appliances, renovations and supporting services. Real estate could be the locomotive that pulls the rest of Ontario’s economy on the track to recovery.”
—These interviews were edited and condensed for clarity
LACKIE: Real estate market going through 'recalibration' of supply, demand – Toronto Sun
Article content continued
Buyer confidence is always the wild card. We have seen this time and time again, but most recently in the early days of the pandemic: the market ground to a halt and the buyers brave enough to venture out were looking for deals.
That momentary seize up was a blip, it turned out. Once people realized that the pandemic discounts weren’t holding, the market fired back up again.
If you look at the actual TRREB data, as Ackerley did, you will see that in spite of new listings more than doubling since Sept. 1, the number of sales once averaged out to account for the wild summer has stayed relatively consistent.
So, the main thing to watch now is what happens with the inventory balance on the condo market. We need to see how long it takes for this surge of new listings to slow and eventually absorb.
“It’s true the landscape is different, but rest assured, this market is very strong for many reasons, increased population, diverse economy, stable political system, etc. The market is going to rebound. This sort of thing has happened so many times in the past where something causes the market to stall, the media scares everyone, then there’s a period of adjustment, and by the time the masses figure it out, prices are [on the rise] again.”
Only time will tell, clearly, but I think we’d all do well to take a beat before declaring impending calamity on the real estate front.
In the meantime, you may have questions and if our chat is any indication, Rob Ackerley surely has answers. Shoot him a note at email@example.com – I know I will be.
Brynn Lackie is a sales representative at Chestnut Park Real Estate Ltd.
Boeing Prepares Deeper Cuts From Executive Ranks to Real Estate – BNN
(Bloomberg) — Boeing Co. is thinning its corps of vice presidents and winnowing real estate holdings, including a splashy outpost near the Massachusetts Institute of Technology, as the planemaker works furiously to counter plunging aircraft sales and mounting costs for the grounded 737 Max.
About 170 midlevel executives, 70 of them based at Boeing’s commercial airplane division, are taking a buyout offer that includes a year’s salary, according to people familiar with the matter. The first of the vice presidents and senior managers to accept the terms will leave the company Oct. 2, followed by a second wave later in the year.
The cuts go deeper and wider than the 19,000 jobs pared earlier this year when the coronavirus pandemic sent air travel into an unprecedented collapse. Stemming the cash outflow has become a paramount concern for Boeing, and the company is also wringing savings from investments in futuristic technology as well as its businesses and organizational structure.
Boeing is shedding assets “like King Midas in reverse,” said Richard Aboulafia, an aerospace analyst with Teal Group.
The biggest and most controversial of the cost-saving measures mulled by Boeing would be to build the 787 Dreamliner at a single site, most likely its South Carolina factory, and close a second final-assembly line in Everett, Washington.
The decision on production amid a steep plunge in wide-body jet deliveries is expected to be announced as soon next month, according to two of the people, who asked not to be named because they weren’t authorized to speak publicly.
Au Revoir Chateau
Boeing also is jettisoning holdovers from the days when it was flush with cash. One example: a lavish executive retreat, modeled after a French chateau, in the countryside near St. Louis. The Boeing Leadership Center is closing indefinitely, with 81 workers from chefs to waiters losing their jobs, according to a WARN report.
Chief Executive Officer Dave Calhoun and Chief Financial Officer Greg Smith warned in July that the company faced a shrinking market that’s likely to remain depressed for years. The Chicago-based company could see a staggering $23.3 billion cash outflow this year, according to an estimate by Melius Research analyst Carter Copeland, before the resumption of Max deliveries starts to fill the company’s coffers in 2021.
Smith, who’s orchestrating the shakeup, said in August that Boeing needs to be “clear-eyed about the market” and how to mitigate its risks.
Boeing signaled last month that a new voluntary exit offer would take workforce reductions well beyond the 10% it initially targeted. The package was aimed at the commercial aircraft and services businesses, the most damaged by the pandemic, as well as the corporate operation, which employed 37,862 people at the start of the year. Fewer employees in the company’s defense, space and government business were eligible for the buyouts.
Boeing is trimming research and development spending in part by phasing out Boeing NeXt, a two-year-old unit focused on futuristic concepts from flying cars to a supersonic business jet.
Aurora Flight Sciences, among the highest profile of the ventures, remains a wholly-owned subsidiary with work proceeding “full steam ahead,” a Boeing representative said.
But the company has tapped the brakes on the Autonomous Flight Research Center it had planned to open this year in MIT’s Kendall Square Initiative in Cambridge, Massachusetts, near the university’s campus.
Boeing is trying to sublease about half of the 100,000 square-feet space it had secured, said Peter Conway, director of research for Boston-based Lincoln Property Co., which doesn’t represent Boeing or the landlord. Aurora no longer plans to move its Cambridge-based team to the building, Boeing said.
The company plans to decide by year-end whether to maintain or monetize its stakes in three ventures:
- Aerion, which is developing a supersonic business jet
- SkyGrid, which is making an air-traffic management system for drones
- Wisk, a joint venture with Kitty Hawk Corp., an autonomous flight venture backed by Google founder Larry Page.
“It’s a different world now,” said Stephen Perry, an investment banker who specializes in aerospace and defense deals at Janes Capital Partners. “They’re all cash-draining businesses in the short run, with an uncertain future.”
Boeing, Perry said, needs to focus on its core businesses because it’s “in a fight for survival.”
©2020 Bloomberg L.P.
Montreal startup uses AI to set real-estate prices – Montreal Gazette
The pandemic has been devastating for so many businesses, but it has also provided opportunities for other entrepreneurs. Take the case of Montreal brothers Mark and Jordan Owen. Both saw their lives significantly altered by the COVID-19 crisis.
Mark, 28, was working for a local real-estate development firm and business had ground to a halt in the spring. Jordan, 26, was in a master’s program in real-estate development and city planning at the Massachusetts Institute of Technology (MIT) and had come back to Montreal in March because all in-person classes had been cancelled.
That’s when they had the idea of starting up a company to produce reusable masks. They founded Bien Aller, named in honour of the Quebec COVID catchphrase “Ça va bien aller.” They created the firm with a friend, Sean Tassé, who had been laid off from his job at a construction-management firm because of the pandemic.
Six months later, they’ve sold about 300,000 masks and they’re still producing them at facilities in Montreal and South Korea. Then the Owen brothers, Tassé and another friend, Benoit Thibeault, had a notion for a more unusual startup. The Owens’ background in Montreal real estate had them thinking that what developers and brokers could really use is a more reliable way to set prices for houses and condos that are going on the sales or rental markets.
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