7 Top Local Realtor Share Their Perspectives on COVID-19's Impact on Housing Market:Current and Future 

The potential impact of COVID-19 on the real estate market: a “best guess” prediction  

Without a doubt, COVID-19 has impacted the lives of everyone around the world. The real estate market is certainly not immune to significant impact from this virus, as supply/demand/pricing of homes will be affected significantly.

COVID-19 has caused significant economic damage to the livelihoods of people everywhere. There is widespread worry about jobs and financial security. In these difficult times, you and your family’s health are of primary importance. We must care about our families and our fellow citizens.

Changes to life have been dramatic. People have been forced to work from home. Children cannot attend classrooms and have to study/learn from home. People are now forced to re-evaluate their priorities in life and devise new life plans and strategies to live life in a new way.

As Canada seems to have weathered the COVID-19 pandemic relatively well, the government has started to let businesses open again. While businesses may be resuming operations, the world as we knew it, is no longer the same. Many people are dipping into their personal savings to deal with their diminished incomes after being furloughed or laid off completely. Business owners are being particularly badly hit. Entrepreneurs who are self-employed have businesses that need to pay rent, staff, and inventory costs. Business owners often pay themselves last, if there is anything left over. Many people currently need emergency government support to pay their bills. There is no precedent for what is happening now. The government is also trying to figure things out with no past experiences to draw from. 

Alberta’s real estate market  

In every real estate market in the world, the underlying health of the local economy is a key determinant of the “balance of power” between buyer and seller. A robust and strong economy will lead to higher home prices. The opposite is true when the economy is in trouble. Alberta’s continued reliance on its resource industry (oil & gas) for government revenue makes it particularly vulnerable to geopolitical factors that are outside its control. With global oil demand having plummeted due to the COVID-19 pandemic and the further impact of significant excess oil supply being dumped on the market by Saudi Arabia and Russia, Alberta faces an epic financial disaster. Oil prices have tumbled to “near zero” which is decimating the province’s finances. If the provincial government does not have enough money they cannot continue to provide all the services its residents are used to. Layoffs have begun to be implemented across different areas where the government employs people. Job losses and salary cuts will impact civil servants, teachers, health care professionals (etc.) while also impacting the funding of government programs.

The shattered consumer confidence as a result of the impact brought by COVID-19 will have a strong impact on the real estate market. Home prices will likely start dropping if the economic news continues to worsen and consumer confidence trends downward.

In regards to the supply of homes for sale during COVID-19, many home owners who have wanted to sell their homes in the busy spring season have postponed doing so for fear of infected people coming inside and potentially contaminating their homes. Home buyers are delaying their purchases because they fear their financial situation is uncertain and they feel home prices may drop strongly if they wait long enough. What is likely to happen? What should a buyer or seller do?  

Home Buyers  

Given that you are in a stable financial position and have a job which is not likely to be affected by layoffs, buying a house now may present a unique opportunity. A home buyer that can qualify for a mortgage in these uncertain times can probably drive a much better bargain against a home seller than otherwise would be the case in a more “normal” market. The challenge buyers may face now is that the home inventory available to choose from is down over 47% from April 2019. Working with an established Realtor may help a buyer potentially unlock the opportunity to view more homes than are currently available on the market. How? An established Realtor is often contacted by home owners to provide them with “market value estimates” in the months leading up to the actual time they want to put their home up on the market. Realtors may know of certain homes that are “coming soon” on the market and get permission from a home owner to let you see the property, even before it comes onto the “public” MLS market. Furthermore, Realtors often speak to other Realtors with homes in the neighborhoods you are interested in. This “networking” between Realtors will often help discover “pocket listings” that are currently unlisted but whose owners may be willing to allow qualified home buyers to see the property (before it officially gets listed on the market).

Often, home buyers “time their purchase” to coincide with their children’s school season. This is why many people start looking at homes between April and July so that they can make an offer on a property they like while simultaneously putting their own home up for sale. The home buyers that are best placed to take advantage of this market are first time home buyers who do not have the “hindrance” of needing to sell a house before buying. Being able to be flexible with a home seller to take possession of the house on a schedule that allows the seller to have sufficient time to look for their next house may allow you more negotiating leverage. Most home sellers do NOT want to risk making an offer on another house until they are certain their own home has a firm sale. A first time home buyer who is flexible with their “move in” date is likely going to get a better price on their purchase.

A home buyer who has “life reasons” for buying a home should consider buying in this weak market to take advantage of the general negative economic climate. A real estate investor may want to consider delaying their purchase until later in the year, however, to wait for more signals on how the general economy is doing. I anticipate a “flood” of “distress sales” towards the end of the year and early next year as homeowners with “deferred mortgages” worry about the end of their deferred mortgage periods (~6 months from now). If these homeowners cannot find employment that helps pay their mortgage, they may end up giving their homes back to the bank (in foreclosure). There may be an increasing supply of such foreclosure purchasing opportunities in the months following the end of any government/bank mandated mortgage deferrals. Keeping a close eye on the news would be an important exercise for “value buyers''.  

Home Sellers  

It is a bad time to be a home seller. With the uncertain economic climate around the world, consumer confidence is down substantially. Demand for goods, services and homes will likely be diminished for the foreseeable future. Homes sales in the Edmonton Real Estate Board have plunged 55% this April compared to the same time last year.

The question a home seller needs to ask is: “what is my goal in selling my house”? Are you selling your house to escape the stress of a high monthly mortgage payment? Are you selling your house because you have a growing family and need a bigger house? Are you selling your house so you can downsize since your kids have moved out? There are many reasons why people choose to sell their home. You need to decide how urgent your need to sell is.

With the current economic environment, however, it may be better to be proactive to try to put your house onto the market now as there are limited competing properties against you. What kind of pricing should you expect compared to a year ago? Are prices likely to improve or get worse next year? While I cannot purport to be a fortune teller, there are enough general economic indicators that would suggest that the real estate market in Alberta will continue to be weak for several years to come. Job losses often lead to a “domino effect” on consumer confidence which leads to people postponing major purchases (homes, cars, and other durable consumer goods).

At the current time, it seems that consumer spending, following the end of strict home quarantine, will likely be diminished moving forward. The result will be that the homes for sale on the market may take longer to sell because there are fewer qualified buyers while there are also more houses to choose from (more supply than demand). I project a strong buyer’s market in the next few years. People will generally be more financially conservative on their home buying decisions and may reduce their budgets to account for unforeseen emergencies, like the one we are in the midst of.

The homes which are the most vulnerable to substantial price weakness are older homes that have less appeal to younger buyers. These homes may be skipped over as they are less appealing or modern in their aesthetic by today’s standards. Furthermore, older homes start to have problems as the functional life of key components (roof, furnace, windows, etc.) tend to fail/need replacement in the 20-30 year home age. The costs to remediate these issues are not insignificant. In consideration of the potential issues/risks of buying an older home, we will see home buyers adjust their offer prices substantially lower. I anticipate homes over 25 years in age will see their values drop by over 5% in relation to the home’s city assessed value over the next year. There may be a benefit for home buyers to consider these older homes as there is likely more room to negotiate. An older home with a large, sub-divisible lot could be a good investment as the lot could eventually be split and two houses be built (for example). The investment value would be stronger in high-demand areas near the University or near downtown.  

Conclusions  

In Alberta, people will need to purge their minds of the belief that real estate values will generally keep going up in the long-term. All economic signals would indicate that the underlying economy is stagnant or getting worse as our provincial finances are in shambles post-COVID while the oil industry is simultaneously in deep retreat. As I had discussed in a previous article, if a buyer intends to live in the city for the long-term and has stable finances... buying a home within their budget supported by a large down payment... would be a prudent financial decision in building equity and long-term wealth.
Buying or selling a home with an experienced Realtor is of critical importance in a challenging market like we are facing now. A Realtor will guide you through the negotiations process while fighting for the best price on your behalf.
Predicting when you should buy or sell real estate is always a challenge. There are no right or wrong answers as your decisions should be guided by what’s best for you, given your life circumstances. In the long term, you will build equity in your home as you pay down your mortgage. So long as your time-horizon to stay in a house is over 5 years from the time of purchase, most times you will be better off buying a house... even if you ended up not buying at the “lowest” point in the market. Sellers, on the other hand, will have to price their homes aggressively to get their homes sold. The “flood” of homes coming onto the market next year following the end of any mortgage deferral options provided by the banks... will lead to a potential crisis in the market with potentially many homes coming onto the market in foreclosure.