The COVID-19 pandemic has made predicting the state of the housing market for the upcoming year more challenging than ever. As Canadians eagerly await the latest update from the Canadian Real Estate Association (CREA), the resurgence of the virus has added an additional layer of confusion to an already uncertain landscape. With a mixed bag of short-term trends and uncertain long-term impacts, experts are grappling to provide a clear picture of what to expect in the real estate market in 2021.
The Short-Term Outlook: High-Rise Condos vs. Low-Rise Homes
According to most property watchers, the short-term trend suggests a weakening of high-rise condo prices and an increase in low-rise home prices. However, the longer-term impact of the pandemic remains far less certain. Economists who monitor the residential real estate market offer a range of views, taking into account the duration of the disease's impact, historically low borrowing rates, and the continuing demand for low-rise homes.
It's worth noting that changes in residential real estate prices significantly impact everyday people who view their homes as a place to live, rather than just an investment. Unlike other investments, managing real estate is complex and demanding. Therefore, understanding the market trends becomes crucial for homeowners and prospective buyers alike.
Unintentional Landlord: Navigating the Rental Market
Anna Blackwell and her husband found themselves unintentional landlords when they bought a downtown Toronto condo in 2016. A job transfer opportunity prompted them to rent out their home until they knew if the move would be permanent. However, the recent competitive market conditions have taken a toll on their rental income. Falling rents have been beneficial for tenants, but property investors who bought condos during the hot market phase are now facing losses either in rental income or potential sale prices.
Although this decline in rental income and property prices didn't come as a surprise to market analyst Ben Rabidoux, who predicted this shakeup in the rental market back in April, it has created challenges for many landlords. Reports indicate that vacancies have increased, leading speculators to consider buying rental buildings with the hopes of upgrading empty flats and charging higher rents when the market bounces back.
The Long-Term Outlook: Demographic Shifts and Changing Preferences
While economists representing real estate businesses and the banking industry express confidence in the condo market's resilience, others raise concerns about the long-term viability of the market. They argue that the high demand for housing in suburbs, smaller cities, and rural areas will continue even after the pandemic. BMO economist Jennifer Lee believes that the work-from-home trend will persist, driving buyers to seek more space outside crowded city centers where real estate prices have traditionally been lower.
However, Carl Gomez, Canadian chief economist for CoStar, urges caution, particularly in inner-city markets like Toronto. He questions whether the demand for "shoe box condos" favored by investors will be sustained in the long run. Gomez believes that the pent-up demand created by low interest rates during the first lockdown might not persist at the same rate.
A Shift in the Real Estate Landscape: Aging Population and Low Birth Rate
Economist Moshe Lander believes that the pandemic may signal a turning point in the real estate market. Despite immigration playing a significant role in boosting demand in recent years, Lander argues that there may not be enough incoming demand to sustain the housing market due to Canada's aging population and low birth rate. He warns that those who viewed real estate as a fail-safe investment in the past may need to reconsider.
Lander also raises concerns about the potential consequences of today's attractive interest rates. While low rates provide immediate benefits to homebuyers, there is a risk that higher interest rates in the future could leave homeowners with little equity built up in their homes if prices don't rise as expected.
In conclusion, the real estate market in 2021 remains highly uncertain due to the ongoing impact of COVID-19. While short-term trends suggest varying outcomes for high-rise condos and low-rise homes, long-term projections are clouded by demographic shifts and changing preferences. As individuals navigate these uncertain times, it's crucial to stay informed and consider the unique factors influencing the housing market.
Investors who signed up to buy condos when the market looked hot are now caught in a bind — having to accept losses on rent or a loss when they sell.
Many suggest demand for housing in suburbs, smaller cities and rural areas will only strengthen as people look for more space in a work-from-home boom which may not end with the pandemic.