‘Prices are not going to go higher’: COVID-19 expected to put chill on spring housing market

Impact of virus on economy, self-isolation measures may keep buyers home and make them more cautious about taking on a large mortgage

Social distancing advisories and the potential for lockdowns in major urban centres across Canada due to the COVID-19 pandemic are likely to sideline homebuyers and put a damper on the traditionally hot spring real estate market, some experts predict.

“We are coming to the view now that because of the virus and the meltdown in financial markets, we will mostly likely see a decline in buying activity through at least parts of the spring market, and maybe even going into the summer market,” said Robert Hogue, senior economist at RBC Capital Markets.

The forecasts come even though the Bank of Canada slashed interest rates by 50 basis points just last week, pushing down mortgage rates, and many expect the bank to cut again.

Hogue believes the negative effect the virus will have on Canada’s economy, coupled with restrictions in movement and self-isolating measures will not only deter buyers from the act of shopping for homes, but make them more cautious in terms of how large a mortgage they will take on.

“With the threat of the recession, you might see more reluctance on buyers to take on bigger amounts of debt even though the drop in interest rate will allow them to borrow more,” Hogue said.

In downtown Toronto, real estate brokerage Realosophy Realty has already started to see an uptick in inquiries from panicked sellers concerned about the value of their homes declining if offers cease to pour in like they once were.

With the threat of the recession, you might see more reluctance on buyers to take on bigger amounts of debtRobert Hogue, senior economist, RBC Capital Markets

“Up until three days ago, this virus was having no impact on the housing market,” said John Pasalis, President of Realosophy. “Then suddenly, we start getting all these calls, people sounding anxious and wondering what their next move should be. I got a query from a couple who are worried about their pre-construction condo and are wondering if they should assign it,” he told the Post.

Out in Markham, Ont., a heavily populated suburb of the Greater Toronto Area, real estate agent Rodrigo Pineros has observed a series of rapidly shifting buying trends in the span of just three weeks.

“When the markets started crashing at the end of February, my younger clients were panicking because many of them were relying on their investments for a downpayment,” he said. “Then interest rates dropped, and two of my clients were able to qualify for a larger mortgage so they said … ‘Okay, we’re saved now, we can buy.’ This week, there’s panic because people don’t really know what they should be doing.”

This week, there’s panic because people don’t really know what they should be doingRodrigo Pineros, real estate agent

Janet (not her real name), a 33-year-old living in a two bedroom condominium in downtown Toronto had been hoping to upgrade to a home, partly relying on investments in her TFSA. But the market crash has severely disrupted her plans of upgrading — she told the Post she had lost about $14,000 that she was counting on for a downpayment.

“I’m just going to have to wait it out, unless home prices drop. So I’m just not sure,” she said.

Housing prices in major urban centres, but particularly Toronto, have been escalating dramatically since January due to a combination of low supply and sky-high demand. According to the Toronto Real Estate Board, sales in February 2020 were up 46 per cent from a year earlier, and prices were up 17 per cent.

Pasalis said he had heard anecdotal accounts of homes in Toronto selling within a day for up to 40 per cent more than their listed price after receiving a frenzy of overpriced offers.

He predicts that if an increasing number of people get ill, or know friends and family who are ill and abide by strict self-quarantine measures for the next few weeks, the number of offers on homes would dramatically decline.

“You’re just not going to have as many people going out there for open houses. If right now homes are getting 10 or 15 or 8 offers, we will start seeing one offer or no offers at all,” he said.

At least for now, TREB’s chief housing market analyst Jason Mercer is not changing his March housing forecast, which predicts higher prices for single-family homes and condominiums. But, he is closely eyeing housing market activity in the second half of March, which he says will provide an “important benchmark against which to reassess market conditions.”

RBC’s Hogue says it might take a few days for buyers and sellers to adjust to the new reality of a pandemic and potential recession. “I don’t think it has sunk it quite yet. But I know every forecaster out there is working the numbers and I can guarantee you when these forecasts come out, (prices) are not going to go higher,” he said.

Financial Post

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