Many prospective homebuyers in Canada’s priciest markets are wondering whether the economic crisis triggered by the COVID-19 pandemic comes with a silver lining for them.
Will this, perhaps, be their chance to finally step on the property ladder?
The answer, according to housing-market watchers, is both complicated and shrouded in uncertainty.
READ MORE: Canadian home sales record 57% monthly drop in April
If you look at them from a bird’s eye view, Canada’s residential real estate prices currently seem frozen in time.
The national average home price edged down just 1.3 per cent in April compared to the same month last year, the Canadian Real Estate Association (CREA) said Friday.
CREA’s home price index, which adjusts for changes in the mix of homes sold, declined just 0.6 per cent between March and April and was up 6.4 per cent compared with April 2019, reflecting hefty pre-coronavirus price gains.
Generally speaking, home prices aren’t budging much, because both the supply and the demand for homes have collapsed roughly in tandem, economists say.
Canada-wide sales of existing homes fell 58 per cent last month compared with the same time last year, but the number of properties newly listed on the market was down 59 per cent from a year ago. As a result, the sales-to-listings ratio — a key metric used to assess whether market conditions favour buyers or sellers — is currently sitting at 62 per cent compared to 64 per cent in March and 65 per cent in February.
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In normal times, it takes a sales-to-listing ratio of 35 per cent or less to have what insiders call a buyers’ market. When there are plenty of homes available for sale and comparatively few buyers, goes the reasoning, house-shoppers can be choosy and have more bargaining power.
By that metric, Canada’s housing market would seem to be firmly in sellers’ territory.
On the other hand, CREA also said, nationally, it would currently take roughly nine months to clear up the current inventory of homes on the market at the current sales pace. That was up from around four months in March.
This means “lingering listings are not getting taken up,” said BMO economist Robert Kavcic in a note to clients.
“Note that the months’ supply peaked at 9.7 during the financial crisis in late-2008, and these levels ordinarily suggest some pullback in prices,” he added.
But, he warned, with the majority of buyers and sellers waiting on the sidelines, “these metrics become a bit less reliable.”
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As everyone knows, however, all real estate is local. And when you zoom in at the level of specific neighbourhoods and market segments, you may find buying opportunities, says Zoocasa CEO Lauren Haw.
“There are absolutely supply-side opportunities, especially in the urban cores, where we’re seeing a bit higher inventory in the condo market,” Haw told Global News.
In some downtown Toronto neighbourhoods, for example, median condo prices have dropped by more than 10 per cent, falling by over $50,000, according to a recent analysis by Zoocasa.
On the other hand, the supply for other market segments has virtually dried up, Haw added.
“The family homes in great school neighbourhoods — they’re not really listing right now,” Haw said.
With kids at home from school, it’s a difficult time for families to put a home on the market, she added. Prospective home sellers who can afford to stay put are doing just that, she noted.
That’s even in the condo market, according to Pauline Lierman of research firm Urbanation. In Toronto, it is only bachelor units and one-bedroom condos valued under $500,000 that have seen their share of sales volumes increase between March and April, with the share of pricier units either staying flat or declining.
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Wealthier condo owners who can afford to wait out the current slump are sitting on the sidelines, Lierman said. And that, in turn, can affect median property values, with average price drops reflecting at least in part the relatively larger number of cheaper condos up for sale.
Haw’s advice to homebuyers is to figure out where they’d like to live and in which kinds of property for at least the next five years. Then, she said, keep an eye out to see whether something that fits their needs becomes available.
“Interest rates are really low and you can get into a market where some of the sellers are quite motivated,” she said.
Some sellers may be under pressure to offload a property because they’ve already bought a new house, she said. Some real estate investors may also be trying to sell short-term rentals they can no longer afford after bookings dried up.
It’s possible there will soon be many more motivated sellers on the market, according to Robert McLister, founder of rates-comparison site RateSpy.com.
“There could be more people who have to set sail in coming months,” he said.
Canadians whose jobs aren’t coming back or who run out of mortgage deferrals may be forced to put their properties on the market, which could put pressure on prices, he said.
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The sales-to-listings ratio, he added, will be a key gauge to watch to see where the market is headed.
For now, there’s significant disagreement among economists about where that might be.
Lierman’s advice for buyers is to rely on an experienced real estate agent who knows the area where they want to buy to keep them up to read the market signals.
“Look for a specialist in your neighbourhood and do your due diligence.”