COVID-19 and the real estate market: 5 questions worth asking

23 July 2020 by National Bank
Housing Market Opportunities During Covid-19 Pandemic

The past few months have altered the country’s economy, with no exception to the real estate market. Depending on your current situation, the next few months may present you with opportunities to seize. Is it a good time to buy or to sell? Here are a few things to consider before you make a decision.

1. Does your home meet your needs?

These may have changed due to COVID-19, and the place where you live may no longer meet your needs. While buying property is a major financial decision, it’s first and foremost a life decision.

“That’s why it’s important to evaluate your personal financial situation and to seek advice from professionals who will be able to guide you through these hectic times. They could help you find the right financing solution as well as answer your questions about a rapidly changing economic environment,” points out Jonathan Haziza, Senior Manager, Retail Financing Solutions at National Bank.

2. How is the real estate market changing in your area?

The media will often point out major trends in Canadian real estate, but the situation may in fact be quite different in your particular area.

The effects of the crisis on the real estate market may vary in your area if you consider the strength of the market before the crisis, the jobs that have been lost, and the strength of the economic recovery. While you’ll still see overbidding on some properties in Montreal, this may not be the case in your area.

Before deciding to sell your property, take the time to research the strength of the market in your area.

3. Has the real estate market started to recover?

The Canadian Real Estate Association (CREA) noted a general decline in home sales between March and April. “A national decline of 56.8%, to be exact,” Haziza specifies. “According to the CREA, sales fell 39.8% between May 2019 and May 2020, marking the lowest sales figure since 1996.”

Encouraging signs of an upswing were noted in June in various major cities across the country. However, this upswing should only last a few months, triggered by buyers who had planned on buying property before the beginning of stay-at-home measures. With time, an increase in unemployment and a slowdown in immigration due to the crisis should reduce the demand. Moreover, the supply of property on the market should increase due to some Canadians experiencing difficult financial situations.

This decrease in demand and this increase in supply should result in lower property prices. While we haven’t noticed a major decrease in prices in the first two months of the crisis due to the simultaneous collapse of the supply and demand on the real estate market, there’s been a moderate decline in prices in May and June. According to National Bank economists, property prices in Canada should fall by about 10% by the end of the second quarter in 2021. However, the degree to which prices fall depends on the area, and Quebec should get by better than some other provinces.

“In the end, the expected slowdown of the real estate market and lower prices will benefit buyers more,” notes Haziza.

4. Have mortgage rates gone down?

Since the beginning of the crisis, the Bank of Canada has lowered its key interest rate three times to make it go from 1.75% to 0.25%. As a result, mortgage interest rates have gone down. In April, the average interest rate issued by Canadian banks for a five-year fixed mortgage was 2.71% according to Statistics Canada, representing a decrease of 0.7% in one year. Since April, mortgage rates have continued to decline to the point where they’ve reached a historic low.

While National Bank economists don’t expect the Bank of Canada’s key interest rate to go back up before the end of 2021, there are many other factors that affect mortgage interest rates. That’s why it’s hard to predict how they’ll change in the future, and you shouldn’t hesitate to seize an opportunity if you see one.

5. What about mortgage insurance?

Recently, the Canadian Mortgage and Housing Corporation (CMHC) tightened their criteria for qualifying for mortgage insurance. However, these tougher rules are specific to the CMHC and other solutions are available with other mortgage insurers.

Speak with one of our advisors, who will be able to help you find the solution that best suits your needs.

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