The Canadian real estate market is recovering much faster than anyone predicted. The average price of a Canadian resale home in June was $539,000, up from 6.5% the year before, according to the Canadian Real Estate Association. Home sales in June rebounded by a further 63% compared to May, which is also 150% above where they were in April when the housing market went into a deep freeze because of the coronavirus pandemic.
These numbers are heavily influenced by sales in Greater Vancouver and the Greater Toronto Area (GTA), two of Canada’s most active and expensive housing markets. July was a record-breaking month for Toronto real estate sales, as more than 11,000 homes changed hands. The Toronto Regional Real Estate Board says average home prices were also up 16.9% with low-rise homes, with properties outside the downtown core being most popular.
At the start of the pandemic, economists expected the recovery of the housing market to take about 18 months, but remarkably, within three months, it went from a complete shutdown to normal volumes again.
“The supply and demand imbalance remains and is driving prices higher,” said Will Granleese, director at Antrim Investments. “There is still a shortage of supply of real estate in major cities. The federal government is pursuing its high immigration policy, with 350,000 to 400,000 new immigrants a year and all those people are still coming. As a result, we are seeing a shortage of space.”
Granleese believes this quick recovery is a temporary supply and demand shock, fueled by record-low interest rates. While new listings are increasing as more time passes, demand never waned throughout the pandemic creating a buildup that pushed prices upward. As we move into the fall and the economy continues to reopen, there are several factors that could contribute to a leveling out in pricing.
“There will be more houses for sale, combined with the fact that many of the government assistance programs like CERB and bank deferral programs are ending. There will be people that will simply need to sell. The rapid rise right now is temporary,” he said.
What has been slightly less surprising is the decline in rental rates seen across cities like Toronto and Vancouver. In both cities, rents hit another record month of declines with Toronto one and two-bedroom prices down 8.3% and 5.3%, respectively compared to July last year, according to PadMapper. Meanwhile, Vancouver’s one-bedroom rent fell 5.9% and two-bedroom rent dropped 10.3% year-over-year. As work and leisure travel completely halted due to the pandemic, and a lot of short-term rental properties were left sitting empty, rental supply began to flood the market. Granleese says once universities reopen, some of that demand will return, but in the meantime, if some of these condos can’t be rented, there may be some buying opportunity heading into 2021.
“Signs are pointing toward a slight softening in the condo market,” says Granleese, as realtors are reporting an increased interest in more square footage. “Young families may choose to move out of the urban core, but I think that demand will eventually return for short-term rentals, foreign students, and young people still working in the core. I don’t see people turning the lights off in downtown condos.”
Drastic changes are more likely on the commercial side, with retail and office space under a lot of pressure to transform, according to Granleese. Rather than major structural changes, he says residential developers may choose to market properties differently, turning nooks or small closets into home office spaces.
With rates sitting at where they are and concern around instability of the commercial real estate sector, another potential outcome is the residential real estate market becoming more attractive from an investment standpoint. Granleese says the residential market may be viewed as a safe haven.
“Our rates are lower than they’ve been in years,” said Granleese. “When the pandemic hit, there were a lot of lenders that restricted their guidelines and loan to values dropped dramatically. At Antrim Investments, that didn’t happen; we took a more bank-like approach and we were comfortable with the market.”
As for permanent or longer-lasting changes to the housing market, he says it’s just too early to tell.
“What I can say is we're going to continue to see borrowers do everything they can to make their mortgage payments, and we're going to continue to see low levels of mortgage default in Canada, because housing has never been more important.”