It’s no secret that COVID-19 has affected all of our lives in the past several weeks, including here at Local Logic (where we’ve been working from home for the past month now). Our mission is to understand our cities and what matters to the citizens of urban communities. So we were interested in knowing how the outbreak might affect home buyers and sellers in Canada.
Our hypothesis was that the current healthcare crisis and its financial repercussions have already had an impact on home buyers and sellers, and will have a much more significant influence on prospective purchasers in the weeks and months to come.
Since Local Logic products are used on approximately 80% of the real estate portals across Canada, we have a good understanding of the users shopping for homes and the inventory available. We looked at this data and how it changed over time, and the results might surprise you.
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Pandemic and economic downturn are distracting buyers
Starting early March, news from around the world started resonating more frequently in Canada and the government released first directions and guidelines. This is also when we saw the first significant decrease in traffic to real estate portals (Figure 1). Historically, Spring is prime time for the real estate market, and indeed last year’s numbers were peaking around March-April, a significant difference compared to current traffic numbers (more details on that on page 5 of our free report).
(compared to January averages).
The correlation coefficient between the two (as of April 5, 2020) is -0.885, indicating a strong negative correlation.
We also found that agents are contacted far less than before. With a cross-country drop of 35% in agents contacted per listing viewed, the trend is clear. Physical distancing measures are taking their toll. With bans on open houses in many provinces, buyers are taking less initiative than before. They’re most likely waiting for the crisis out and postponing kicking-off their buying process.
In the midst of global turmoil, sellers are waiting
At the moment, the latest reports from most of the Real Estate Boards are for March 2020 and these still show an increase in transactions year-over-year. However, based on our data, that covers newly listed properties, we think this is likely to change soon.
Across the country, fewer listings are posted online for sale with each day that passes. Once again, this is in negative correlation to new confirmed cases of COVID-19. Figure 3 shows the numbers for the four provinces that are the most affected by the Novel Coronavirus. In most cases, we see the beginning of an upward trend throughout the end of February and beginning of March, but that has swiftly changed as news of the outbreak spread and its impact became clearer.
At the moment, we don’t see significant changes to property values just yet, but it’s too soon to tell if this indeed will be the case in a month or two. Latest reports on the Housing Price Index by Teranet still support our findings, as they as well show an upward trend early in 2020, but do not include any March data just yet. As some sellers are naturally reluctant to lower their prices, a drop in demand might drive that change in the coming weeks or months. (See more information and data on the Canadian home sellers on page 13 in the full report.)
What does this mean for the Canadian real estate market?
Published real estate data indicates the market has not been affected by the global health crisis yet, but there are multiple indicators this might change soon. We have already seen some short term effects that this pandemic has had on the Canadian market, mostly through how prospective home buyers respond and interact with agents and listings online.
Due to stay-at-home directives across the country, and self-isolation practices, open houses are not happening nearly as frequently, and potential home buyers are contacting agents much less frequently (35% drop across the country in one month).
While residential transaction are still increasing, we expect a more negative outcome in the coming months, due to several factors:
- Drop in resale properties inventory over the past month
- Sharp decrease in contacting agents
- Earlier-affected territories market response to COVID-19
- Historical market responses to other outbreaks
With all of the above in mind, we can expect a slow down in transactions across the country in the coming months for a limited period of time.
While there currently are no indications that prices will go down in the long run, this could happen as an indirect result of the economic crisis induced by the pandemic. Many potential sellers and buyers might indeed face income loss, bankruptcies, savings and pensions devaluations, which can affect both the demand and the supply.
Government response to the financial crisis will also have a significant impact on how things will turn out. Some of the initial steps already taken (controlling the interest rates, benefit packages for lost jobs, and other direct payments) could improve the situation once the market starts healing and going back to normal. We do believe housing prices will decline, but not crash to extreme levels.
The full 18-page report is available to download in PDF for free and without any registration or email required.Download now for free