"Sheer economic shock" has had a profound effect on the real estate sector, says economist
Few sectors have felt the financial impact of the COVID-19 pandemic more than real estate – and according to RBC senior economist Robert Hogue, it is still unclear whether the changes brought about by the crisis are “permanent or transitory.”
“In just months, the landscape of Canadian real estate has been shaken to its core,” Hogue said in his latest housing report. “The battle to control the spread of COVID-19 has not only altered how and where Canadians work, but also led many to question where and how they want to live.”
Read more: Home prices have some support despite sales slowdown – RBC Economics
According to Hogue, the “sheer economic shock” of the pandemic has had a direct impact on the income of many Canadians – and the housing market could see an uptick in listings because of this.
“Almost 780,000 people opted to defer mortgage payments since the start of the pandemic, representing 16% of mortgages in bank portfolios,” said Hogue. “By the end of August, the vast majority of mortgage holders whose deferral period has expired had resumed regular payments. However, it remains unclear how many will ultimately be able to continue as outlook for jobs remains bleak for many Canadians. This poses a risk for the housing market, especially in areas where the economy is shakiest. Financial strains could potentially unleash a wave of properties for sale.”
Canada’s falling immigration numbers could also have a negative impact on the housing market. Hogue called immigration a “key pillar of Canadian housing demand,” – yet in the second quarter of 2020, the number of new permanent residents plummeted 64%, with total net migration collapsing 94%.
“To date, weak in-migration has had minimal impact on Canada’s overall housing market,” said Hogue. “But if sustained, we expect it will temper rental demand in larger markets as immigrants tend to rent in their first five to 10 years after landing into our country. This could have negative repercussions for condos and longer term, an extended period of weak in-migration could deplete future cohorts of first-time homebuyers.”
Despite the uncertainty, Hogue said that the Bank of Canada’s commitment to keep interest rates low until at least 2023 has made it “more affordable to own a home.”
“Generous government income support programs for households most affected by COVID-19 also made it easier to carry mortgage payments,” said Hogue. “Overall, Canadian households received more money ($56 billion) from government aid programs such as CERB [Canada Emergency Response Benefit] and other transfers in the second quarter than they lost in wages and salaries due to the pandemic ($23 billion). On net, household disposable income spiked 11% in Canada. This substantially increased buyers’ purchasing power.”
