{"id":13044,"date":"2020-03-30T06:00:46","date_gmt":"2020-03-30T10:00:46","guid":{"rendered":"https:\/\/www.zolo.ca\/news\/?p=13044"},"modified":"2022-01-14T12:49:45","modified_gmt":"2022-01-14T17:49:45","slug":"covid-19-impact-real-estate","status":"publish","type":"post","link":"https:\/\/www.zolo.ca\/blog\/covid-19-impact-real-estate","title":{"rendered":"How Will COVID-19 Impact Real Estate?"},"content":{"rendered":"\n

From a dramatic decline in sales activity to a major decrease in earnings to a wholesale switch to virtual business, the current COVID-19 global pandemic will change Canadian real estate in the short- and long-term.<\/span><\/p>\n\n\n\n

Efforts to #FlattenTheCurve \u2014 the term adopted to describe the strategies designed to dramatically slow the transmission of the coronavirus \u2014 are absolutely necessary but these efforts have a dramatic short-term impact as well as long-term implications. <\/span><\/p>\n\n\n\n

There are fears that a global recession is now unavoidable (and that the worst is yet to come); combine this with the limited purchasing power among potential home buyers, a problem that could remain even after the immediate COVID-19 risk subsides, and questions arise over how drastic the impact of COVID-19 will be on the housing market and the overall global economy. <\/span><\/p>\n\n\n\n

What can current homeowners, buyers, sellers, real estate investors and the professionals involved in this industry expect during these uncertain times? <\/span><\/p>\n\n\n\n

To help answer this question, Zolo analyzed 20 years of sales activity and sold prices in two of Canada\u2019s largest real estate markets, Greater Toronto and Greater Vancouver. (To see this analysis, please read Impact of COVID-19 on GTA<\/a> or go to the GTA<\/a> or GVA<\/a> infographics below.)<\/span><\/p>\n\n\n\n

Based on this analysis, here\u2019s what to expect in the short- and long-term.<\/span><\/p>\n\n\n\n

In the Short-Term Expect Dramatic Declines<\/h2>\n\n\n\n

According to sales data, up until March 26, 2020, the spring real estate market was set for a record-breaking sales season, especially in Canada\u2019s largest cities.<\/span><\/p>\n\n\n\n

The <\/span>Canadian Real Estate Association (CREA) reported exceptional sales for February 2020 \u2014 with a nationwide 27% year-over-year increase in sales. Toronto and Vancouver led the way with year-over-year increases in sales of 45.6% and 44.9%, respectively.<\/span><\/p>\n\n\n\n

But even with these strong numbers, activity started to slow after March 11, 2020, when the World Health Organization declared COVID-19 a pandemic. Going forward, expect a dramatic decline in sales activity across all of Canada, at least for the short-term. How does this impact you? We take a look. <\/span><\/p>\n\n\n\n

How the COVID-19 Crisis Will Impact Homeowners?<\/h3>\n\n\n\n

Canadians that were homeowners prior to the COVID-19 crisis will need to concentrate on minimizing the overall cost of this pandemic while maximizing cash-flow. While this will look different for each homeowner, essentially it will require: <\/span><\/p>\n\n\n\n

  1. A drop in monthly expenses; <\/span><\/li>
  2. Prioritizing the payment of the mortgage<\/span><\/li>
  3. Continue to pay bills; and<\/span><\/li>
  4. Maintain or increase (if possible) monthly earnings. <\/span><\/li><\/ol>\n\n\n\n

    In short: Spend less than you earn.<\/span><\/p>\n\n\n\n

    1. Drop expenses. <\/b>For tips on household expenses to scrutinize, please see How Much You Should be Budgeting for Housing Expense<\/a>. Another option sit to scan your debits or credit card charges and look for recurring expenses that are no longer necessary. Consider cancelling or postponing service for monthly subscriptions to apps that are no longer essential or entertainment purchases that are not critical, at present. The key is to chop and drop all expenses that don\u2019t allow you to self-isolate and work-from-home in an effective manner.\u00a0<\/span><\/p>\n\n\n\n

    2. Prioritize mortgage payments. <\/b>If you find yourself worried about making current or future mortgage payments and you\u2019ve exhausted other options \u2014 such as the skip-a-payment privilege, using a HELOC, or increasing your loan\u2019s amortization \u2014 then it\u2019s time to chat with your lender. <\/span>Mortgage deferral relief<\/span><\/a> should not be the first choice. Not only are you dependent on meeting your lender\u2019s criteria \u2014 which changes from lender to lender and from day to day \u2014 but deferring your mortgage payments can add quite a bit of money to your overall mortgage loan.\u00a0<\/span><\/p>\n\n\n\n

    For example, if a homeowner started their $600,000 mortgage in March 2019, then a six-month deferral would end up adding almost $10,000 to their overall mortgage debt. <\/span><\/p>\n\n\n\n

    Why? Because the deferral only applies to the principal portion of the mortgage payment; the interest portion must still be paid. To help, lenders are allowing homeowners to add this interest portion to their overall mortgage debt. The amount added to your mortgage depends on a number of factors including how much you borrowed, your current monthly mortgage payment, and how far into the term and amortization of the loan. Generally speaking, however, homeowners closer to the beginning of their mortgage term will end up having more interest added to their mortgage through deferral relief. <\/span><\/p>\n\n\n\n

    3. Continue paying bills. <\/b>The key is to continue to pay all your bills, in full and on-time. When this isn\u2019t possible, then prioritize paying your bills on-time. If you miss a payment or pay a bill late, this action is automatically reported to your credit history file. For some homeowners, just one missed or late payment can result in a lower credit score. Plus, a late or missed payment stays on your credit report for six to seven years. Avoid the hassles associated with lower credit scores and bad credit history by consistently paying your bills on-time.\u00a0<\/span><\/p>\n\n\n\n

    4. Increase monthly earnings. <\/b>Obviously, this is easier said than done, particularly during a crisis that requires self-isolation and social distancing. However, consider what talents or hobbies you can monetize to help bring in extra income. Or consider investing in learning a new skill that could pay off financially in the future. Every little bit helps.\u00a0<\/span><\/p>\n\n\n\n

    How the COVID-19 Crisis Will Impact Homebuyers?<\/h3>\n\n\n\n

    It\u2019s pretty standard for buyers to hesitate on taking the plunge on a property purchase at a time when unemployment numbers are rising. Perhaps there is a fear that circumstances around your own employment may change, or maybe you lost investment savings, which will negatively impact your debt ratios (the relationship between earnings\/assets and debt that lenders use to qualify you for a mortgage). <\/span><\/p>\n\n\n\n

    Over the short-term holding off on a property purchase may be the best option. <\/span><\/p>\n\n\n\n

    As the crisis unravels, however, be sure to examine your personal financial situation. Those who aren\u2019t worried about losing employment income and with sizable (and secure) savings, maybe in the best position to go house-hunting. That\u2019s because in every market there are always sellers who need to sell (and buyers who need to buy). Perhaps the seller is relocating for work or selling to free up cash, or going through a divorce, but no matter the reason, these highly-motivated sellers are facing deadlines that cannot wait for the pandemic crisis to end. In these circumstances, well-positioned buyers can negotiate better deals. <\/span><\/p>\n\n\n\n

    How the COVID-19 Crisis Will Impact Home Sellers?<\/h3>\n\n\n\n

    If you have not already listed your home, consider whether or not you must sell now. If you don\u2019t, wait. If you do need to sell in this current environment, you\u2019ll probably need to make some tough decisions in the near future. If you leave the property on the market, you may have to stomach a long wait between the list date and potential sale date as fewer buyers view your home. You will also need to consider how to handle low-ball or lower-than-asking offers \u2014 strategies all buyer agents will suggest to their clients. If you have to sell, consider the impact of selling sooner at a lower price, than risking a future sale amid unknown circumstances. <\/span><\/p>\n\n\n\n

    How the COVID-19 Crisis Will Impact Real Estate Investors?<\/h3>\n\n\n\n

    Like sharks, real estate investors often get quite active when housing markets struggle and we shouldn\u2019t expect any different during this current crisis. <\/span><\/p>\n\n\n\n

    Chances are there will be significantly fewer investors shopping the market but that doesn\u2019t mean the investors will disappear. Real estate investors who are well-capitalized, with relatively little fear of reduced earnings and a strong appetite for risk, will certainly be shopping the market looking for exceptionally good deals. And they\u2019ll find them even if some of these investors run into roadblocks as they try and secure financing for these investment purchases.<\/span><\/p>\n\n\n\n

    Real property is considered a safe place to invest for stable, consistent earnings (even with the high transaction costs associated with real estate investments). Combine this with the poor investment climate for bonds and real property has become the de facto fixed-income alternative for the last 10+ years. As a result, more and more investors have flooded housing markets, looking for a property investment and this has certainly helped push housing prices up in the last few decades. So, a word of caution to investors in this current market: pay attention to the fundamentals.<\/p>\n\n\n\n

    How the COVID-19 Crisis Will Impact Real Estate Professionals?<\/h3>\n\n\n\n

    Already brokerages across North America adapted how to interact with buyers and sellers. <\/span><\/p>\n\n\n\n

    Agents found creative ways to show properties using online or virtual formats, while <\/span>brokerages<\/span><\/a> quickly developed and enforced new company guidelines that respected the need for social distancing and prioritized virtual interactions. <\/span><\/p>\n\n\n\n

    However, not all brokerages are well-positioned to implement these digital strategies. Companies, like Zolo, and housing market professionals that were proactive in leveraging tech and digital platforms to create business models without the reliance on in-person contact will certainly fare better in the short-term. <\/span><\/p>\n\n\n\n

    While all real estate firms will share in the dramatic, but temporary, drop in housing market earnings, only those firms that proactively leveraged tech and digital platforms to create business models without the reliance on in-person contact will fare better in the short-term. As a tech-disruptor in a hard-to-adapt industry, Zolo is one of those early tech adopters. Now, faced with a short-term decline in revenues, these forward-looking firms will face fewer losses and a quicker turnaround in business interruption. <\/span><\/p>\n\n\n\n

    For the real estate professionals that did not prioritize digital strategies prior to the COVID-19 crisis, not only will they see a dramatic drop in sales due to the pandemic\u2019s impact, but in order to compete in this changing economic landscape, they\u2019ll need to invest time and resources to create and transition to online and virtual methods of doing business. As a result, some brokerages (along with other real estate professionals) may not survive the short-term impact of this pandemic. <\/span><\/p>\n\n\n\n

    Going forward, brokerages and agents will need to continue their efforts to market and sell listings without in-person marketing strategies. <\/span><\/p>\n\n\n\n

    In the Mid- To Long-Term Expect a Recovery\u2026Eventually<\/h2>\n\n\n\n

    It\u2019s hard to predict how long this current pandemic will threaten global health and financial security, but history shows that North American housing markets will bounce back. <\/span><\/p>\n\n\n\n

    Over the last 20 years, global markets have faced two pandemics (not including COVID-19) and two financial catastrophes, and each time, housing markets eventually recovered. <\/span><\/p>\n\n\n\n

    To get a better grasp on how these catastrophes impact Canada\u2019s housing market, Zolo analyzed 20 years of sales activity and sold data in the Greater Toronto and Greater Vancouver areas. <\/span><\/p>\n\n\n\n

    This analysis shows that the event with the single largest impact was the implementation of the federal mortgage stress test (on January 1, 2018). However, the event that took the housing market the longest to recover from was the Great Recession of 2008\/2009. <\/span><\/p>\n\n\n\n

    According to this analysis by Zolo, average year-over-year sales prices in Greater Toronto<\/a> dropped almost 12% in 2008, when the U.S. housing market crashed and prompted a global recession. These losses were temporary, however, and by the end of 2009, the annual average home price increased by almost 14%, year-over-year.\u00a0<\/span><\/p>\n\n\n\n

    \"Toronto<\/a><\/figure>\n\n\n\n

    Average sale prices in Greater Vancouver<\/a> didn’t drop in 2008; instead, there was a year-over-year increase in GVA’s annual average sale price of 2.48% and an anaemic year-over-year increase in 2009 of o.5%.\u00a0<\/span><\/p>\n\n\n\n

    \"Vancouver<\/a><\/figure>\n\n\n\n

    For more GTA details read: The impact of COVID-19 on the Greater Toronto housing market<\/a><\/span><\/p>\n\n\n\n

    The bottom line is that the housing market can and will recover as long as the fundamentals of the market persist. For example, if jobs return to Greater Toronto, then we could expect to see the pent-up demand from buyers push sales activity into a seller\u2019s market. The same is true for just about any market across North America.<\/span><\/p>\n\n\n\n

    What to Expect in the Post-COVID-19 Real Estate Market<\/h2>\n\n\n\n

    It\u2019s impossible to predict just how long COVID-19 will impact the economy, but homeowners, buyers and sellers would be wise to remember how the fundamentals of the housing market, especially in larger regions, such as Greater Toronto and Greater Vancouver, generally don\u2019t change. <\/span><\/p>\n\n\n\n

    Prior to COVID-19, demand in these regions was really strong. Combine this with a population that\u2019s still on track to grow and the potential of jobs returning to the markets, and the economic recovery that will eventually take place will more than likely lead to a recovery in the country\u2019s housing markets. <\/span><\/p>\n\n\n\n

    GTA Infographic: Impact of Catastrophes on the Greater Toronto Real Estate Market<\/h3>\n\n\n\n

    Please include attribution to https:\/\/www.zolo.ca with this graphic.<\/strong><\/p>\n\n\n\n

    \"Impact<\/a><\/figure>\n\n\n\n

    Infographic: Impact of Catastrophes on the Greater Vancouver Real Estate Market<\/h3>\n\n\n\n

    Please include attribution to https:\/\/www.zolo.ca with this graphic.<\/strong><\/p>\n\n\n\n

    \"Greater<\/a><\/figure>\n","protected":false},"excerpt":{"rendered":"

    Zolo analyzed 20 years of sales data, including 5 prior catastrophes, to understand how COVID-19 will impact real estate markets. Based on this analysis, here’s what homeowners, buyers, sellers, investors and real estate professionals should expect<\/p>\n","protected":false},"author":3,"featured_media":17376,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"guide":[],"class_list":["post-13044","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-trends"],"acf":[],"zolo_excerpt":"","_links":{"self":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/13044","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/comments?post=13044"}],"version-history":[{"count":10,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/13044\/revisions"}],"predecessor-version":[{"id":20184,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/posts\/13044\/revisions\/20184"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media\/17376"}],"wp:attachment":[{"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/media?parent=13044"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/categories?post=13044"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/tags?post=13044"},{"taxonomy":"guide","embeddable":true,"href":"https:\/\/www.zolo.ca\/blog\/wp-json\/wp\/v2\/guide?post=13044"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}