Coronavirus is already taking its toll on Canada's real estate market
The real estate frenzy in Canada’s biggest markets is headed for a chill as anxiety rises over the economic fallout of the coronavirus.
A call for social distancing means far fewer people will be opening up their homes to potential buyers.
RE/MAX wants its realtors in Ontario, the Atlantic provinces and Western Canada to cancel open houses until COVID-19 is under control.
“While almost all real estate brokerage firms have embraced digital tech and realtors are able to utilize signature platforms and other tools to conduct business, once showings, open houses and other in-person business is restricted, there will definitely be a drop off in transactions,” John Lusink, president and broker of record at Right at Home Realty, told Yahoo Finance Canada.
“We expect to see a drop in sales but this will take a month or two to filter through into the actual results.”
Buyers will also likely put their plans on hold.
“Obviously there has been an immediate pause in market activity as everyone tries to figure out what happens next,” Steve Saretsky, realtor and author of real estate blog Vancity Condo, told Yahoo Finance Canada.
“We are seeing buyers move to the sidelines and sellers put some of their listing plans on hold.”
But that doesn’t mean the end result will be more affordable homes.
“The way I see it the housing market is basically frozen... no buyers and no sellers,” Benjamin Tal, deputy chief economist at CIBC Capital Markets, told Yahoo Finance Canada.
“That in a way will limit or even eliminate any notable downward risk to prices. Simply the number of sales will go down dramatically.”
Measures to shore up the market
The Bank of Canada announced two interest rate cuts in March, which led the country’s 6 biggest banks to lower their prime rates that determine variable mortgage rates.
Lower interest rates can serve as rocket fuel for home prices, but that won’t likely be the case this time.
“Low interest rates are not helping here much since we have reached a point in which reduced confidence takes over improved affordability,” said Tal.
The Bank of Canada also announced new measures to ensure liquidity during the COVID-19 pandemic.
Canada’s 6 biggest banks saw their lending margins increased and say they will cut clients some slack, including allowing the deferral of mortgage payments.
"Effective immediately, Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19," the banks said in a statement.
"This support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products."
Saretsky says he expects borrowers to take the banks up on their offers.
Effects across sectors
Jivan Sanghera, president at Circle Mortgage Group, says he’s getting ready to close his office and work from home.
“I have a feeling it's just a couple more days work and we won't have much to do,” Sanghera said.
“I can't see why people would even consider listing their homes for sale currently with the risk that strangers bring.”
Housing starts data will tell us how badly the homes that were supposed to be under construction will be hit. Tal says the effects are already being felt.
“The main damage will be in the new construction. We are already hearing about cancellations of pre sales as developers are unable to get the financing due to weak demand that will continue, so expect notable slowing in housing starts.”
A slowdown in that part of the market means that, along with realtors and mortgage brokers, construction workers will take it on the chin too. But there is some light at the end of the tunnel.
“We have to remember that this crisis has an end game, a vaccine. So knowing that is shaping the reaction curve of governments,’ said Tal.
“You just try to ride the wave until we reach that point which will take a while.”
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.
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