While the coronavirus has impacted individuals and industries across the globe — negatively affecting the stock market, travel industries, and more — many buyers and sellers are wondering how it will impact our local real estate market.
Here’s what we know so far:
First, it’s important to note that the 2020 real estate market is already off to a hot start. Prices are rising, sales are increasing, and inventory is selling faster than it can be replenished, resulting in rampant bidding wars, which is all good news for sellers. Plus, historically low interest rates will add a lot of fuel to the fire when things return to normal. The upcoming mortgage rule changes have been postponed temporarily due to these incredibly low rates. The changes will likely come into effect when rates normalize in the coming months. In the meantime, rates are headed to new lows.
The Real Estate Market vs. The Stock Market
I’ll start by clarifying that the real estate market and the stock market are not connected — they are two entirely different markets.
The factors that have been driving the real estate market’s growth — demand for housing, lack of supply, the greenbelt, low unemployment, steady wage gains, and more — will remain when the virus is contained. 500,000 Canadians applied for unemployment last week as a result of temporary layoffs. We anticipate further layoffs in the coming weeks but expect the majority of these jobs to return upon containment of the virus. If the virus is contained and restrictions are lifted, in a reasonable amount of time, we have no reason to believe that activity will not return to pre-crisis levels.
When the coronavirus sent stocks into correction territory in February, The Dow Jones Industrial Average lost 10.07%, the Standard & Poor’s 500 Index dropped 8.41%, and The NASDAQ Composite fell 6.38%.
Meanwhile, real estate prices were up across the province. In Hamilton, prices were up 13%, and sales increased 27%.
Investors know that real estate stands to benefit the most from this temporary crisis as financial markets bounce back and forth. Take a look at the best-performing stocks over the last month — utilities and real estate have come out on top.
The Interest Rate Drop
On March 4th, officials announced a benchmark interest rate cut, dropping it half a point from 1.75% to 1.25%.
The Bank of Canada cut interest rates by another half a percentage point on Friday March 13th in an emergency move to buffer the nation’s economy from the double hit from the coronavirus and tanking oil prices. This brought the central bank’s policy rate to 0.75 per cent and said it “stands ready” to move again if needed.
Last week, the US Federal Reserve has cut its target interest rate to zero to support the country’s economy and prevent further financial market disruption — and there’s a high chance Canada will follow suit.
The cuts are part of a global reaction to the coronavirus, made in an effort to avoid an economic downturn in the country. It’s also a huge benefit to our real estate market. A lower rate means more buyers will pass the stress test, more homes will be purchased, and sales will continue to rise.
Five-year fixed mortgage rates are now in the mid-2% range and are expected to drop lower.
What We’ve Learned
Our housing market remained positive throughout the 2003 SARS crisis. During the 2008 financial crisis, we saw home prices and sales rise significantly in our region. Plus, the current economic impacts of the coronavirus are expected too be short-lived.
During the 2008 recession, the 2015 oil crisis, and now with the coronavirus, we’re seeing interest rates plummet to new lows. As we’ve witnessed throughout history, this will stimulate the housing market and add more heat to the already hot market.
What Will Happen Next?
All in all, the economic impacts of the virus will pass as the virus gets under control. We are expecting a busy market when the current situation stabilizes.
Buyers should prepare for this upcoming market and all the opportunities it will bring. Make sure you know what you can afford, stay up-to-date on the constantly changing rates, and most importantly, work with an expert who can help you navigate it all.