Update On Real Estate And COVID-19; Is Now A Good Time To Buy A Home?
As I write this, we are on day 70 something since the state of emergency was announced in Ontario, and although we are starting to see positive signs, including a framework for reopening our province being released, there is no doubt that over two months of COVID has had a dramatic effect on all of us.
As a real estate professional, I’m getting asked if now is a good time to buy a home? The short answer is yes… and no. What COVID has done is to shift the spectrum for whom it is a good time to buy a home. In the following 1,000 odd words, I will outline some key factors we are looking at, that are indicating this is a good time for some buyers to purchase, as well as who those buyers are. Before we jump in, I want to emphasize that these indicators should be looked at in relation to your individual situation, as every home purchase is unique, especially during these unprecedented times.
Let’s first look at what factors indicate that COVID has shifted the market in such a way that it would make it a good time for some to buy.
The Market Has Been Resilient
One of the biggest things to look at when deciding if now is a good time to purchase is looking at how the real estate market is reacting. According to The Canadian Real Estate Associate (CREA) statistics for April, the biggest factor impacted by COVID was the volume of business, not necessarily values. CREA’s national statistics for April 2020 reported the lowest sales figures since 1984, with a 57.6% drop in activity compared to the same period last year. However, the national average price only fell by -1.3% on a year over year basis. Some markets, including the GTA, saw increases to values. According to The Toronto Region Real Estate Board’s home price index, which compares sale prices relative to the types of properties that sold, values actually crept up month-over-month and were up 10% on a year-over-year basis.
What this indicates is that, yes this is an unprecedented time, many industries will be impacted for months if not years to come, and the impacts of unemployment and increased debt on the economy as a whole are not certain, but despite these factors, confidence in the value of homes across major markets in Canada has remained steady.
There is Significantly Less Competition Now
Across Canada, the current pandemic has put a halt on activity levels. According to Stats Canada, in the month of April, 36.7% of Canada’s potential labour force either did not work or were working less than half their usual hours. In addition, to date, approximately 8.25 million unique Canada Emergency Response Benefit (CERB) applications have been received. Although certain markets like the GTA have reported a rebound in the number of showings and registered offers since mid-April, the total number of active buyers is still below pre-pandemic norms. What this means is less competition in general for those looking to purchase a home. This is not to say there won’t be others looking to purchase the same home you are, but that what was previously ten’s may now be only a few.
The Froth is Off the Market
With less competition has come a settling of the market in terms of the final purchase price. To be competitive in desirable areas and property types pre-pandemic, it was not uncommon for buyers to bid up and pay above-market prices just to win their home of choice. In February of 2020, CREA reported that the national average sales price has increased by +15.2% year over year. In contrast, CREA reported a decrease of -1.3% for this same metric in April 2020. This indicates that the redlining of prices has subsided, for now, and that buyers and sellers are being more realistic with their purchasing decisions, meaning what may have cost you 5-10% more a few months back is now more reflective of its true market value.
Greater Flexibility and Coverage for Offers
Does the idea of buying a home without a full house inspection, confirmation of financing or other coverages seem a little stressful? That was the pre-pandemic norm for many buyers competing in bidding wars to win the home of their dreams in major markets. With the unfettered confidence of sellers pre-pandemic relaxing, buyers now have the opportunity to make winning offers with clauses designed to protect them, as well as greater flexibility on terms and other seller concessions. This means you can have more confidence when purchasing a home, as well as less stress/ uncertainty if, and when a hurdle arises.
Accessing Information and Professionals is Easier than Ever
Considering the computer in our pocket is more powerful than the one that put a human on the moon, you would think an industry as prolific as real estate would have a digital option available for every step of the process, yet this was not the case. Pre-pandemic, the vast majority of the industry relied on in-person consultations. However, in just a short period of time, the industry underwent a tremendous transition to digital. Buyers now have more access to resources, articles, videos, online seminars, video consultations, 3D virtual tours and more. This has made the research and education portion of the buying process easier and less time-consuming. It also reduces the barriers to accessing professionals early in your search, meaning the quality of information and insight you receive is higher. If you are interested in learning the basics on Mortgages, can you learn more in Borrowing 101: An Introduction to Mortgages.
Now that you are equipped with an understanding of the key factors, let’s look at who is in the best position to purchase. For a purchase to make sense you should have:
stable current and future income
a down payment that is liquid and not dependent on the performance of the equities market
are purchasing the property with the intention of holding it for a minimum of 4-5 years.
With that in mind, here are some individuals for whom right now may be a good time to buy.
With competition at unprecedented lows, price expectations reasonable, and the ability to include a financing clause in an offer, right now is the ideal time for a first-time buyer to enter the market. Most first-time homebuyers, as a result of having never purchased before, are not familiar with the pace or process of buying, they also tend to have less wealth to fall back on. This makes maintaining their mortgage ratios and hitting their appraisal all the more critical along with ensuring they don’t fall into common mistakes. Presently, first-time buyers have the luxury of less competition, be less likely to require overpaying and be able to craft offers that cater to the extra care first-time buyers tend to require or prefer.
Move-up Buyers Looking for a Freehold
As prices decrease, the gap between the total cost to purchase different types of homes change at different rates. For those who have been wanting to move up from a condo to a freehold home, the gap between values has decreased, making the jump more manageable. For example: if a condo and a detached home were valued at 600k and 980k respectively, then a buyer would need to bridge the gap of 380k to move up from a condo to a freehold. Now if values decreased -3.9% for condos and -7.8% for detached (like we saw in Toronto in April) the prices for those same homes would be $576.6k and $903.6k, meaning the gap between them is now only $327k or $53,000 less that a buyer would need to bridge in order to move from a condo to that detached home.
If you have been relegated to the sidelines whether it be a lack of comfort with previous levels of competition, restrictions related to financing, properties bid out of reach etc- this might be an opportune time. For many of the same reasons as first time home buyers, the current market offers an opportunity to purchase a home that was previously unavailable.
So now that you know the short and long answer to the burning question “is it a good time to purchase a home” let me summarize. For those not burdened by debt and fortunate enough to maintain a stable income, right now is a good time to consider buying a home if you are looking to enter the market for the first time, have been relegated to the sidelines due to previous market conditions, or are looking to make to leap from a condo to a freehold home. Of course, the situation is unique, so consider factor number four and speak to a professional to determine whether right now is a good time for your specific situation.
About the Author
Chris Stapleton is an award-winning Realtor and Partner at Coral Realty. With over a decade of combined experience, Chris and his team provide solutions based, community-focused real estate services to the Greater Toronto Area as well as industry insights on the Canadian housing market.