Homebuyers, real estate investors and industry commentators alike are grappling with the many ways the COVID-19 pandemic will impact Canada’s housing market and the path ahead as economic activity across the country cautiously resumes.
One approach in the search for clues on both the short and long-term market implications of the pandemic’s disruptive effects is to look at how the 2008-2009 global financial crisis played out.
While there are several quickly identifiable similarities — home sales falling dramatically, cuts to interest rates, evaporating buyer confidence — there are a couple of key differences to keep in mind as the pandemic wears on and the market adjusts to the challenging new environment.
In a report published earlier this month, BMO Senior Economist Robert Kavcic highlighted that Canada’s resale market “has effectively frozen itself in time.” New home listings, he wrote, are sharply declining alongside home sales which likely means that “the deterioration in prices should be contained for now.”
“Contrast that to 2008/09, when sales fell by almost 40 percent from the end of 2007 to the 2009 lows, but new listings rose by 15 percent through the early stages of that period — that’s how you get a quick and meaningful decline in prices,” Kavcic wrote.
So even though home sales figures looked bleak in the second half of March and entirety of April, there’s reason to believe that this strong economic shock will differentiate itself by not leading to a sharp fall in home prices.
“We suspect that sales and listings could both come back in rapid fashion, leaving broad prices steady through this challenging period,” Kavcic wrote.
That prediction has, so far, played out in the data published by real estate boards in major markets across the country. Average Toronto home prices rose a marginal 0.1 percent in April over the previous year even as sales declined by 67 percent. Meantime, Vancouver’s real estate board reported a 2.5 percent increase to its benchmark home price in April with sales hitting a 38-year low for the month.
Home prices tend to respond slower to changing market conditions than monthly sales volumes, but as businesses reopen and homebuying activity creeps back up, Canada’s housing market may resume activity closer to where it left off than the bleak April data would suggest.