Real Estate Market: Does it make any sense during Covid19?

The economy is shrinking, businesses are closing and jobs are disappearing due to the coronavirus pandemic. But in the housing market, prices keep chugging higher. Nothing makes sense anymore in this market and “demand absolutely just got a kick in the gut, but at the same exact time, so did supply,”

Whether you’re looking at downsizing, or investing in a new home, looking to fix-and-flip, or just buying a condo for occasional Airbnb use, understanding the larger real estate market is critical.

The truth is, real estate is always in flux. home prices, interest rates, and market trends evolve daily, and understanding these ebbs and flows can help make you a smarter (not to mention richer) investor in the long run.

Not sure where to start? Well nothing is guaranteed. Everything you thought you knew about the real estate market, the state of housing, the trends and market conditions seems to have a mind of it's own, or does it? It seems that some markets have a mind or demand of their own, and Victoria has always drummed to it's own beat?

A Caveat: Every Market is Different
Though you can certainly look at nationwide stats like median home price, sales volume, or the number of homes on the market, the truth is real estate is local. Every city, municipality, and province has its own unique marketplace, with its own unique buyers, sellers, and trends. There are even different rules and regulations to contend with in each area.

Because of this, real estate markets vary greatly depending on locale. In Victoria, for example, the median listing price comes in at close to $1 million now — a far cry from the budgets of most average Canadians. In Cobble, BC, though? You can find a spacious, single-family home, with a large property for around $500,000, again depending on preference and updates?

If you’re planning to invest in, buy, or sell real estate, it’s important to be tuned-in to your local market — not just what’s going on nationwide. While the overall economy, mortgage rates, and other trends will play a role, your purchase will be most influenced by the factors at work in your specific marketplace. 

Types of Real Estate Markets
There are three types of real estate markets you can find yourself in locally: a buyer’s market, a seller’s market, or a balanced market. The exact market you’re in should inform your approach as you choose investments, make offers, and negotiate deals.

Here’s what these markets look like:

Buyer’s market 
A buyer’s market is one in which there are more properties for sale than there are buyers. This means home buyers have the upper hand and enjoy more choices in properties, as well as more negotiating power when making a purchase. If you’re buying a home, this is the ideal market to do it in.

In a buyer’s market:
  • Homes take longer to sell.
  • Buyers have more listings to choose from.
  • Buyers have less competition.
  • Buyers can make lower offers and negotiate more on sales price and closing costs.
  • Sellers may have to do more to market their properties.
  • Sellers may need to lower their price points.

Seller’s market
A seller’s market is the opposite. In a seller’s market, there are fewer listings than there are buyers, and buyers face stiff competition among themselves. Because of this, they may encounter bidding wars or their home search might take longer than expected. If you’re looking to sell a home, a seller’s market is the best time to do it.

In a seller’s market:
  • Buyers may have a hard time finding a property.
  • Homes sell quickly.
  • Buyers face stiff competition.
  • Sellers can demand higher price points.
  • Sellers can be picky with who buys their home.

Balanced market
In a balanced market, buyers and sellers are on even ground. The number of homes for sale is on-par with the level of demand, and neither side has an upper hand. Balanced markets tend to last for shorter amounts of time than buyer’s or seller’s markets, and they usually occur between the transition from one market to the other.

In a balanced market:
  • The number of homes for sale is in line with buyer demand.
  • Appraisals are on par with offers.
  • Home prices aren’t rising or falling steeply.
  • Neither home buyers nor sellers have much power to negotiate.

Housing Market Predictions
If you’re looking ahead to next year’s investments, a number of industry forecasts can help point you in the right direction. 

Here’s what experts are predicting

Rate Forecasts Are Educated Guesses
No matter how well-researched and modelled an economist's prediction is, mortgage rate forecasts are still only educated guesses and, at best, they are as accurate as a weather forecast. The further into the future a prediction, the less precise it is.

A Weak Economy
Canada is now in a recession. Recently, most reports have been adjusting expectations downward. In other words, predictions from March and April underestimated the size and duration of the economic impact of the Coronavirus containment efforts. They are likely still underestimating the duration. Most forecasts assume a single wave of infection.

Canada shed nearly two million jobs in April, as the novel coronavirus pandemic tore through the Canadian economy. The official unemployment rate soared to 13% but it would have been 17.8% if the agency had included the 1.1 million Canadians who stopped looking for work — likely because the COVID-19 economic shutdown has limited job opportunities. Analysis by Danielle Goldfarb, Head of Global Research at RIWI, was recently featured in Maclean’s. It showed 34% of Canadians lost more than half of their income.

Home sales will rise.
Unfortunately for home buyers, prices have increased slightly, even during the pandemic  in the past few months. However, and the median price of homes sold have held steady, this may be a lead indicator that prices will continue to hold, or increase.

People planning to sell their home will take heart in the fact that home values are at all time highs. Given the global recession and pandemic, sellers may want to push ahead and sell now.

There is no guarantee that home prices will regain the current highs any time soon because a Coronavirus induced recession may inflict long-term economic damage.

Coronavirus may now the primary source of uncertainty for the real estate market, but it seems that consumers are pushing ahead and making that purchasing decision. Reasons may being that Victoria or Vancouver Island has done well during the pandemic, we are on the map in terms of being a safe place and beautiful place to live.

Home price growth might slow.
Home prices will rise no matter how you slice it, but the pace at which they’ll rise is up for debate. It seems that Victoria as always been a unique and strong market and we have the perfect criteria to keep it strong.

Stress test for mortgage for New Buyers

The Mortgage Stress Test (MST) were typically applied to insured mortgages, in which the borrower had put down less than 20% towards their down payment. However, as of January 2018, all borrowers will be subjected to the new stress test.

Timing the Market

No matter how much you know about the housing market, mortgage rates, or the Bank of Canada's (BoC) Governing Council next move, there’s really no way to perfectly time a real estate purchase. Sure, we’d all like to snag a deal of a property with low interest rates and rising home values, but the fact of the matter is, it’s unpredictable. It also comes down to value, a seller as a price in mind, and a buyer has a price in mind, ultimately the market will dictate the price once the buyer and seller agree what the property is worth through a negotiated process and circumstance.

Most experts agree that while being educated about real estate is critical, trying to time the market isn’t best. Though market factors are certainly important in a real estate purchase, your personal finances and the timing in your life matter more in the long term — especially if you want to stay afloat on your mortgage or ensure those investment returns. 

The long and short of it? You want to buy a property when the timing is right for you, not for the market. Specifically, this means:

You’re a good candidate for a mortgage loan or whatever financial product you intend to use for your purchase.
You can afford your expected monthly mortgage payments and housing expenses (as well as those on other properties you own, too.)
You have consistent income and employment. (In case you experience a long vacancy period or you can’t flip the house, you’ll need cash to cover your payments for the long haul). 
You have the time and means to care for the property, renovate it, and manage it (if you’ll be renting it out to others). 

With that said, there are some statistically better times than others to buy a house.