Canadian Home Sales, Construction Headed For Period Of ‘Severe Declines,’ CMHC Says

Cultural shifts and economic upheaval are among the reasons why there is “extreme uncertainty” in the outlook for housing.

JEWHYTE VIA GETTY IMAGES
Condo towers line the Bow River in Calgary. CMHC says the city will take longer than others for its housing market to recover from the economic downturn.

OTTAWA ― Canada’s housing market is headed into a period of “severe declines″ in sales and construction, but the full effect of COVID-19 on real estate is far from certain at this point, according to a new report by the Canada Mortgage and Housing Corp.

CMHC deputy chief economist Aled ab Iorwerth described an uneven recovery that will “vary considerably″ across different parts the country, and urged that forecasts be taken in the context of an “extreme uncertainty″ that lies ahead.

Average home prices in Toronto, Montreal and Ottawa are expected to rebound sooner, starting in late 2020 and rolling into early 2021. Prices in Vancouver, Edmonton and Calgary may not bounce back until later in the forecast period, the report said.

 

Calgary and Edmonton will see average home prices decline due to uncertainty around oil prices and economic recovery in the region.

Volatile factors, such as a potential second wave of the virus, higher unemployment and the pace of an economic recovery, could influence the direction of the housing market in the coming months, ab Iorwerth explained.

“We are still at the early stage of understanding the impact of COVID-19 on the economy in general, and on the housing market in particular,″ he said on Tuesday in a conference call.

“Limited data availability means we will remain in the zone of considerable uncertainty.″

He said the CMHC is relying on its own housing market outlook from late May as its central forecast for the coming months. It expects the housing market likely won’t see a return to pre-pandemic levels before the end of 2022.

Cultural shifts

Greater cultural shifts may also affect the speed of recovery, he said, and many of those developments are so recent that they’re hard to fully comprehend or quantify.

Cities which lend themselves to industries that allow for working from home, could prove to make those regions “more resilient,″ which could have ripple effects on housing, ab Iorwerth said.

“We do not yet have a grasp on the answers to questions, such as the impact of greater work from home, differing impacts across industries, the effect of less mobility across provincial boundaries and the decline in immigration following cutbacks and international aviation,″ he added.

There are also substantial questions about how rental markets will be affected.

He noted that a decline in immigration and interprovincial activity will lower demand for rental units, which combined with a “significant new supply in rental properties close to being completed,″ could mean that vacancy rates are likely to jump.

“Such increases in vacancy rates, however, will be from historically low levels in Toronto and Vancouver, in particular,″ he noted.

Earlier this month, CMHC reported the annual pace of housing starts, excluding Quebec, fell 20.4 per cent in May compared with April.

The Canadian Real Estate Association reported in May that home sales had their worst April in 36 years, with home sales falling 57.6 per cent from a year earlier to 20,630 sales for the month.

First-Time Homebuyer? These Rebates, Credits Can Save You Money

Canadians can save thousands of dollars with government programs.

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A young couple receives the keys to their new apartment in this undated stock photo. Some provinces have programs available specifically intended to help first-time homebuyers enter the housing market.

Purchasing a house in Canada is tricky at the best of times, but getting into the property market for the first time is especially tough. To help with some of the costs of buying your initial home, there exists a range of programs for eligible first-time homebuyers. It’s a good idea to learn about these programs to avoid leaving money on the table.

These are the five biggest first-time homebuyer programs in Canada. Some aren’t available in every province, so we’ve noted where that’s the case.

1. Land transfer tax rebates

One of the largest closing costs when purchasing a home is the land transfer tax, which is charged in every province except Alberta and Saskatchewan. The City of Toronto also charges a land transfer tax on top of the Ontario tax. Land transfer tax rates are generally between 0.5 and 3.0 per cent of the home purchase price.

To help manage the cost of land transfer tax, Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer rebates for first-time homebuyers. These programs reimburse some, or all, of your land transfer taxes. Each location has a maximum rebate, listed below:

  • City of Toronto: $4,475
  • Ontario: $4,000
  • British Columbia: $8,000
  • Prince Edward Island: $2,000

If you’re buying the home with someone who is not a first-time homebuyer, this may prevent you from qualifying for some, or all, of the rebate. Different eligibility rules apply for each location. Some governments require that you’ve lived in the province for a certain amount of time to claim the rebate. Others require that your home’s property value be less than a certain amount. Check your government’s website for exact qualification requirements in your location.

2. The Home Buyers’ Tax Credit

The Home Buyers’ Tax Credit (also referred to as The Home Buyer’s Amount) lets first-time homebuyers claim $5,000 of a property purchase on their tax return. With current tax rates, that results in a $750 rebate.

You’ll need to claim this credit on your tax return in the year you buy the property. You can split the credit between two returns for joint purchases, but the overall claim can’t exceed $5,000.

When you purchase a newly built house, construct a new house, or make substantial renovations to your existing home, you’ll be charged GST or HST. The GST/HST New Housing Rebate reimburses a portion of this.

This rebate isn’t exclusive to first-time homebuyers, but many first-time buyers use it when purchasing a new home. Eligibility and rebate amounts depend on the province your home is located in. You can claim the rebate within two years of buying your new house, or from when construction was completed.

4. The Home Buyers’ Plan

The Home Buyers’ Plan (HBP) is not a credit. Instead, it’s a way for you to increase your down payment with money from a Registered Retirement Savings Plan (RRSP), thus increasing how much mortgage you can afford.

First-time homebuyers can withdraw up to $35,000 from an RRSP, but it’ll need to be repaid (on a non-deductible basis) within 15 years to avoid a penalty. Any amount withdrawn needs to have been in the RRSP for at least 90 days – if not, those contributions may not be tax-deductible.

It’s important to consider the long-term financial implications of this program. While borrowing from your RRSP can increase what you can afford today, you may sacrifice outsized returns that could have come from maintaining your RRSP.

5. The First Time Home Buyer Incentive

This program is also not a rebate. Rather, the First-Time Home Buyer Incentive is a shared-equity mortgage with the Canadian government. With this program, the government takes a 5 to 10 per cent stake in your home, with you retaining exclusive access.

This lets you buy a home with a smaller deposit and lowers your monthly mortgage payments. The government contribution needs to be repaid within 25 years, based on the home’s market price at the time the incentive is paid back. This means that if your home’s value goes up, then the government also benefits from the increase. The same is true should your home’s value decrease. If the home is sold before the contribution is repaid, the government receives its applicable share from the sale.

This program is interesting, but it doesn’t suit everyone. Firstly, not all homebuyers will want a shared-equity mortgage. Secondly, the incentive has some very specific eligibility criteria, which limit the types of buyers the incentive is useful for.

Are you a first-time homebuyer?

To be eligible for most of these programs, you’ll need to be considered a first-time homebuyer. Keep in mind that some programs have additional eligibility factors. Check with your local government or a local mortgage professional to be sure.

Here are some key factors that could affect your eligibility as a first-time homebuyer:

First-time homebuyers: You’re generally considered a first-time homebuyer if you have not previously had any ownership stake in a home at any time. However, for federal government programs, you can qualify as a first-time homebuyer so long as you have not occupied a home that you (or your spouse or common-law partner) own in the year of your new home purchase and the four years prior.

Owner-occupied: The property you’re buying generally needs to be your main residence. Exact rules vary, but you’ll typically need to move in shortly after purchase.

Residential status: You’ll need to be a resident of Canada to apply for most first-time homebuyer programs. Some programs also require you to be a permanent resident or Canadian citizen. Moreover, some programs and provinces require you to have lived in a province for a certain time period.

Co-buying: If you’re a first-time homebuyer but your buying partner isn’t, you may only be able to claim a portion of a program.

People with disabilities: There are special rules and additional rebates for people with disabilities. Many first-time homebuyer programs can be claimed by people with a disability multiple times, subject to certain conditions.

The bottom line

As a first-time homebuyer in the 21st century, you’ll want every bit of help you can get. The programs available in Canada go a long way towards making buying a home easier and more affordable.

If you need more information or advice, it could be worth speaking to a mortgage professional such as a mortgage broker. Along with providing advice, mortgage brokers can often find you better mortgage deals than you would have found yourself.

For more government resources, check out the links below:

Banning Foreign Home Buyers Would Get Backing Of 78% Of British Columbians

Support for a ban cuts across all demographics, Research Co. says

GFED VIA GETTY IMAGES
Single-family homes in Victoria, B.C., with Mount Baker, in Washington state, in the background. A large majority of British Columbians would back a ban on foreign buyers.

The vast majority of British Columbians would follow in New Zealand’s footsteps and ban most foreigners from buying homes in Canada, a new poll from Research Co. finds.

In an online survey of 800 adults in British Columbia, 78 per cent of respondents said they were in favour of a New Zealand-style ban on foreign buyers, while 15 per cent opposed the idea and 7 per cent were undecided.

“The notion of forbidding most foreigners from owning real estate in Canada is popular among all demographics in British Columbia,” Research Co. president Mario Canseco said in a statement.

Canseco said the highest support came from Vancouver Island residents and those aged 35 to 54, with 88 per cent support among both groups.

An influx of foreign buyers has been one of the most commonly cited reasons for Vancouver’s high house prices. The metro area typically ranks among one of the three least affordable housing markets in a survey of hundreds of cities around the world.

New Zealand, which has struggled with similar affordability issues as Canada’s larger cities, moved in 2018 to forbid foreigners from buying residential real estate. The law exempts citizens of Australia and Singapore, because of free trade agreements.

Foreign buying limited in numerous countries

But though the debate has focused recently on New Zealand’s move, many countries around the world limit the ability of non-residents or non-citizens to purchase housing.

Australia moved several years ago to limit foreign buyers to newly-built properties. Switzerland ― a popular destination for the world’s rich ― sets quotas for foreign home buyers, and those can vary from one canton (county) to another.

Mexico forbids foreigners from owning land in specially designated zones, which include many of the most popular seaside areas of the country. Malaysia limits foreign buying with a minimum purchase price for foreigners.

A number of other countries limit foreign buyers to condos, and sometimes limit the number of foreign condo owners in a building.

Vancouver saw years of rapid house price growth that came to an end around 2016, when the province introduced a 15-per-cent foreign buyers’ tax that temporarily took the wind out of the markets’ sails. The province hiked that tax to 20 per cent in 2018, when home sales again began to accelerate.

As in all parts of Canada, home sales tanked in B.C. during the COVID-19 lockdown, but prices have remained steady.

Though sales were down 42.5 per cent in May from a year earlier, the average resale price was up 3.2 per cent from a year ago, at $728,898, the British Columbia Real Estate Association reported.

The Research Co. poll found widespread support for a variety of moves the province and city of Vancouver have made over the past few years to improve affordability, including the increase to the foreign buyers’ tax, as well as the “vacant home tax” on unused properties and a new tax on properties valued above $3 million. All got the support of at least three-quarters of respondents.

The poll has a margin of error of +/-3.5 percentage points, 19 times out of 20.

Canadian Mortgage Rates Hit All-Time Low

Too bad it comes at a time of monumental uncertainty.

KELVIN MURRAY VIA GETTY IMAGES

MONTREAL ― Interest rates around the world have fallen sharply amid a pandemic-induced economic crisis, and the result is that it has never cost less to borrow money to buy a house in Canada.

Rates on Canadian mortgages have fallen to their lowest levels ever, with one bank ― HSBC Canada ― now offering a five-year, fixed-rate mortgage at 1.99 per cent.

HSBC’s offer is “Canada’s lowest bank-advertised five-year fixed rate ever, according to our records,” mortgage comparison site RateSpy wrote on its blog, noting also that it’s the first time this type of mortgage has been offered below 2 per cent.

“HSBC’s move not only reflects historically low funding costs, but its continued drive to brand itself as Canada’s most competitive lender,” RateSpy said. “The likes of RBC, TD, Scotiabank, BMO and CIBC could easily undercut this rate if they wanted to, but they likely won’t near-term.”

But with interest rates falling around the world, other lenders are also cutting their rates, and mortgages in general are “at an all-time low now,” said James Laird, co-founder of Ratehub.

That, coupled with emergency lockdowns lifting, has Laird expecting to see a pick-up in home sales in June.

“We’re seeing a ‘mini’ spring home-purchase market emerging right now, which is interesting to watch,” he said. “It’s going to be a far better month from a home sales perspective than the last two months have been.”

New rules cut maximum purchase price

Unfortunately for buyers, those rock-bottom rates come just as new mortgage insurance rules come into place that will reduce the maximum purchase price for those who have less than 20 per cent for a down payment.

The new rules to qualify for mortgage insurance from Canada Mortgage and Housing Corp. (CMHC) are expected to cut the maximum purchase price for borrowers of insured mortgages by up to 12 per cent, more than offsetting the drop in mortgage rates for those who can’t come up with a 20-per-cent down payment.

CMHC head Evan Siddall recently warned that Canada risks financial instability because of high and rising household debt levels.

With hundreds of thousands of unpaid mortgages piling up, Canadian households are headed for their highest ever debt levels, Siddall told parliamentarians in May. Household debt could be as high as $2.30 for every dollar of disposable income by the end of this year, well above the record $1.78 set several years ago.

Siddall said one in eight Canadian mortgages are currently in deferral, and that could rise to one in five.

Laird noted that Canada Guaranty ― a private mortgage insurer ― is almost there already, with 17 per cent of the mortgages it insures in deferral.

Mortgage deferrals soared in Canada this spring, after the major lenders put in place emergency programs that allow borrowers to halt payments for six months. The payments are then tacked on to the end of the mortgage term, and borrowers are on the hook for interest during the deferral period.

Many of those six-month deferrals will end in the fall, and the question on everyone’s mind is how many of those people will be able to start paying again.

“That’s going to be the story for the second half of 2020,” Laird said.

Falling prices ahead?

Siddall ruffled some feathers in May with a forecast predicting the average house price would fall by 9 to 18 per cent this year ― a forecast many in the industry saw as too pessimistic.

Some forecasts issued in April predicted rising prices this year, despite the economic crisis.

But more recently, others have added their voice to the pessimistic argument, with economists at National Bank of Canada predicting a “sharp decline in Canadian home prices” over the next year.

They predicted the Teranet house price index ― a different measure than the average resale price cited by CMHC ― would fall “in the neighbourhood of 9 per cent this year.”

They don’t see lower mortgage rates helping much.

“In past recessions, substantial declines in interest rates have favoured stabilization of the housing market, but this time the effect … could be much smaller,” economists Matthieu Arseneau and Alexandra Ducharme wrote.

“Interest rates were already very low before the crisis, and (central banks around the world) have very little room to maneuver.”

CMHC Acknowledges Its Role In Forced Resettlement Of Black Canadians

“We reject racism, white supremacy and wish to atone for our past racism and insensitivity,” the mortgage insurer said.

ANDREW VAIUGHAN/THE CANADIAN PRESS
The Africville Museum is seen on the site of the former community of Africville in Halifax, M.S., Tues. Feb. 24, 2015. Canada Mortgage and Housing Corp. has acknolwedged its role in the forced resettlement of Africville residents as well as a lack of diversity in its ranks today.

Canada Mortgage and Housing Corp. acknowledged a lack of diversity in its ranks and its role in past acts of racism on Friday as it pledged to overhaul how it does business.

The federal housing agency said it will re-assess all of its practices through a racialized lens to an effort to eliminate discrimination.

It also used the statement to acknowledge its role in funding the forced resettlement of Black people, most notably from Halifax’s historic Africville and Hogan’s Alley in Vancouver.

CMHC’s decision was prompted by anti-Black racism demonstrations held across Canada and the U.S. after the death of George Floyd, a handcuffed Black man in Minneapolis who pleaded for air as a white police officer pressed his knee against Floyd’s neck for nearly nine minutes.

“We haven’t done nearly enough. CMHC must set a high standard,″ the agency said in a statement.

“We must all stand together with our Black co-workers and the victims of murder, oppression and the systemic racism that exists everywhere.”

Black people make up 3.5 per cent of Canada’s population and 5.2 per cent of CMHC employees.

Those who are Indigenous amount to 4.9 per cent of the national population and 2.4 per cent of the CMHC workforce.

“At CMHC, we would once have congratulated ourselves for our diversity,” CMHC said.

“This is however no achievement when too few of our people leaders are Black or Indigenous ― none among senior management. And diversity isn’t enough: it’s where we start.”

Kike Ojo-Thompson, who runs diversity, inclusion and equity consultancy Kojo Institute, said CMHC’s statement seemed like it was written in the voice of someone who really understands the moment the country had been plunged into.

She found it interesting that CMHC was so forthcoming with data around their Black and Indigenous employees, “particularly because their numbers are so low.”

“The first step to an accountability framework and accountability approach is to actually show your data, so that you as well as the community can know what the target is,” she said. “If you’re low, we know you’ve got to get from zero to three, or three to five, and we’re not going to expect 10 tomorrow… so exposing the data is very helpful.”

Among the measures announced Friday, CMHC said it will create specific targets for adding Black and racialized people to its leadership and senior management ranks.

FRED LUM/GLOBE AND MAIL VIA CANADIAN PRESS
Evan Siddall, president and CEO of Canada Mortgage and Housing Corp in an interview on June 16, 2014.

It will offer leadership training and professional development to support the progress of Black and racialized employees and provide mandatory anti-racism training for all staff.

People with lived experience of racism will now be involved in a re-assessment of CMHC’s recruiting, evaluation and promotion processes and its diversity and inclusion efforts.

“We reject racism, white supremacy and wish to atone for our past racism and insensitivity,″ CMHC said.

“Racism has been built up and reinforced for centuries, whether against Black, Indigenous people or people of colour. Only a sustained and focused effort will eliminate it.”

Ojo-Thompson said there were some measures missing from the statement.

She would have liked to see CMHC mention an external advisory body.

Such a group must be external, she said, because it offers protection and accountability in organizations that may otherwise punish people who speak out.

She also wanted more clarity around who exactly came up with the new policies and promises CMHC made and how much flexibility they offer if people suggest further ideas.

“What you’ve told me is, ‘This is what I’m going to do,’ so my question is, ’If I say that there’s something missing, will you do that or is this all?‴⁣

Real Estate Industry Criticizes CMHC’s ‘Irresponsible,’ ‘Panic-Inducing’ House Price Forecast

“We are concerned that some damage may already have been done.”

NATHAN DENETTE/THE CANADIAN PRESS
CMHC president Evan Siddall speaks to the Canadian Club of Toronto, Thurs. June 1, 2017. Siddall is taking criticism from real estate industry insiders over a pessimistic forecast for Canadian housing.

MONTREAL ― Members of Canada’s real estate and mortgage lending industries have lashed out at the head of the country’s government-run mortgage insurer for a forecast they say is far too pessimistic.

Evan Siddall, CEO of Canada Mortgage and Housing Corp. (CMHC), told a parliamentary finance committee last week that he expects the Canadian Real Estate Association’s (CREA) house price index to fall between 9 and 18 per cent in the wake of the COVID-19 pandemic.

Despite criticism from industry, the CMHC reiterated its house-price prediction in a report issued this week.

 

That forecast also predicts home sales will be down 19 to 29 per cent after the pandemic, and it sees a massive decline in new housing construction of between 51 and 75 per cent, before starting to recover early next year.

These scenarios have many industry insiders and analysts worried that the CMHC could be panicking the public into a housing crash.

“The worry … is that the very public warning from the crown corporation becomes self-fulfilling,” Stephen Brown, senior Canada economist at Capital Economics, wrote in a client note.

Christopher Alexander, an executive vice-president and regional manager at Re/Max of Ontario Atlantic Canada, put it more harshly.

“Sellers simply won’t accept that kind of discount on their listings. A statement of this nature is panic-inducing and irresponsible,” he said in a statement issued Friday.

Re/Max, which has called for a 2.9-per-cent decrease in house prices nationally this year, noted that other experts aren’t forecasting such large drops, with most forecasts calling for a short-term decline of 5 to 10 per cent.

Siddall strikes back

Siddall took aim at his critics in the industry in a series of tweets coinciding with the release of the CMHC’s forecast.

“They’re whistling past the graveyard and offering no analysis,” the CMHC chief quipped.

Evan Siddall

@ewsiddall

Please question the motivation of anyone who wants you to believe prices will go up (yes, up) with our economy in slow motion, oil being given away, millions of Canadians on income support and a greater % of mortgages not being paid than we’ve seen since the Great Depression.

144 people are talking about this

Evan Siddall

@ewsiddall

Here’s more on our house price outlook. Some vocal real estate advisors have labelled us “panic-inducing and irresponsible,’ saying essentially that house prices don’t go down. They’re whistling past the graveyard and offering no analysis. Here’s ours. You decide. https://twitter.com/cmhc_ca/status/1265675929562624009 

CMHC

@CMHC_ca

We looked at the recent financial & economic developments in Canada, including the impacts of the #COVID19 pandemic. Check out the national highlights on the #housing market ⬇️ & learn more in the full report: http://ow.ly/aIOG50zRxRT 

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Damage done?

Capital Economics’ Brown forecast earlier this month that the Teranet house price index would fall 5 per cent, but would stay below its peak levels “for years” as he expects there to be drag from lower immigration and higher debt levels.

But the CMHC’s forecast may have changed the situation, Brown argued.

“We are concerned that some damage may already have been done. As the history of boom-and-bust cycles shows, individuals’ expectations play a big role in how house prices develop.

“With the CMHC’s alarming forecasts covered by all the major news outlets this week, some Canadians have probably become far more concerned about prospects for the housing market.”

A consumer confidence survey taken in the week ending May 22 found that confidence in the housing market is the lowest on record.

The Bloomberg-Nanos consumer confidence index for real estate was 9.89, out of a possible 100. Any score below 50 suggests that more people are pessimistic than optimistic about the market.

That came even as Canadians’ confidence in other parts of the economy began to rebound. The overall consumer confidence index rose to 39.32 from around 37 four weeks earlier. However, that is still close to the worst level in records going back to 2008, worse than at any point during the financial crisis a decade ago.

NANOS RESEARCH
The Bloomberg/Nanos index of Canadian consumer confidence has been recording its lowest levels ever amid the COVID-19 pandemic.

Siddall also warned that Canada risks falling off a “debt deferral cliff” this fall, when homeowners will have to start making payments again on hundreds of thousands of deferred mortgages.

According to the Canadian Bankers Association, some 716,000 Canadian mortgages, or some 15 per cent of the total, are now in deferral, and 391,000 credit card accounts are in the process of being deferred.

But many in the industry believe the strength of Canada’s housing markets going into the crisis will pull them through the other side.

“Markets are in a better position than people think to absorb that,” CREA chief economist Shaun Cathcart told the Financial Post.

Brown isn’t so sure.

“Rents in the big cities already appear to be falling fast,” he wrote. “With rental yields already very low, that is a big risk to house prices.”

Rents have risen sharply in recent years, so many condo investors will still be able to pay their mortgage if they cut their asking rents, Brown wrote.

“But it is likely to be a problem for investors taking delivery of new condos this year. If rents in Toronto and Vancouver fall by 5 per cent to 10 per cent as we expect, many of these investors will face negative cashflows and may decide to sell their properties.”

Canada’s Average Home Selling Price Falls 11% In April, With Toronto Leading

Every major housing market in the country saw a price drop in April.

SHAUNL VIA GETTY IMAGES

MONTREAL ― It didn’t take long for the coronavirus pandemic to tilt Canada’s long-resilient housing markets into a downturn.

Prices fell in almost every major housing market in the country in April, with Toronto leading the way, data from the Canadian Real Estate Association (CREA) shows.

The national average selling price fell 10.9 per cent, on a seasonally adjusted basis, to $475,310 in April from $533,504 in March. Thanks to earlier strength in the market, that’s just 1.3 per cent lower than a year ago.

Of the large metro areas, Toronto saw the steepest selling price drop, with the average dropping 11.8 per cent, to $789,274 for all housing types.

That was followed by Ottawa, where prices tumbled 9.6 per cent, to $462,000. The average selling price in Vancouver fell 6.2 per cent, to an average of $1,009,570.

HUFFPOST CANADA
This chart shows the percentage change in house prices from March to April of 2020 in selected markets across Canada.

Falling average price numbers don’t necessarily mean sellers are slashing their asking prices. They can also reflect a change in the mix of housing that’s being sold. Recent numbers suggest high-end home sales have fallen more than others, which would drag down the average price.

“Indeed, with activity shrinking so dramatically and likely to stay depressed for several months, average prices will likely be distorted, and not fully represent broader market conditions,” TD Bank senior economist Brian DePratto wrote in a client note.

Home sales were down 57.6 per cent nationwide, compared to the same month a year earlier, to the lowest sales total since 1984.

“The flip side is that, given the nature of this shock, new listings plunged by 56 per cent in the month and were down 59 per cent from a year ago. … the monthly market balance hasn’t deteriorated all that much,” BMO economist Robert Kavcic said.

The lack of new listings “reiterates that the housing market has, in unprecedented fashion, effectively shut down and closed for business.”

“The real question is how the market will evolve when lockdowns are lifted and activity can re-start with some semblance of normalcy,” Kavcic wrote in a client note Friday.

“That is, it’s going to be a race between sales and listings out of the gate to determine how the market balance shapes up, and where prices move in the near term.

Housing Prices In Canada Immune To COVID-19: Economists

TD Bank sees home prices rising 6% this year, even amid massive job losses.

EDB3_16 VIA GETTY IMAGESAn aerial view of condo towers surrounded by low-rise homes in the Greater Vancouver city of Port Moody, B.C. Canada’s home prices are expected to remain resilient in the face of the COVID-19 economic crisis.

But apparently it can’t derail Canada’s housing markets, many of which can expect to see rapid house price growth once the outbreak passes, several recent forecasts have predicted.

Despite a steep drop in sales this year, the average home price in Canada will be 6.1 per cent higher at the end of this year than it was a year earlier, TD Bank said in a forecast issued this week.

 Given that incomes are unlikely to rise much during this crisis, “affordability will deteriorate when you look at house prices,” the report’s author, economist Rishi Sondhi, conceded.

Sales may be falling, but the supply of homes on the market is falling with them, Sondhi said, which means the market balance isn’t shifting much.

Many people are hesitant to put their house on the market ― either because of concerns about the virus, or concerns about the health of the market.

“Sellers are moving to the sidelines just as rapidly as buyers are,” Sondhi told HuffPost Canada.

We might be in a situation where (prices) start to accelerate into the uncomfortable zone.”Peter Norman, VP and chief economist, Altus Group

Still, TD’s forecast makes a few big assumptions. One is “that provinces take tentative steps towards re-opening their economies over the next month.”

Another is that the country won’t see a sudden rush of people who need to sell their homes quickly, thanks to the banks’ new mortgage deferral programs.

Not everyone agrees. At least one recent forecast says the country will likely see some “forced selling” in the housing market.

And what about the millions of Canadians who have lost work in this crisis? Won’t their plight affect house prices?

Like some other economists, Sondhi says that won’t have as much impact on the housing market as one would think.

That’s because, they say, the jobs lost in this crisis have disproportionately affected people in service industries ― think customer service reps and Starbucks baristas ― and these people overwhelmingly tend to rent.

“While it is sad that these people skewed strongly to young and to part-time workers, for the housing industry, the impact of these presumably temporary job losses will be limited as these groups are much less likely to buy and sell real estate,” Phil Soper, president and CEO of real estate agency Royal LePage, said in a report earlier this month.

TD’s forecast sees Toronto house prices rising 7.8 per cent this year, compared to last year, while Vancouver will see 4.7 per cent growth. Things will look worse on the Prairies, TD predicted, where the oil slump will lead to a 4.7 per cent price decline in Alberta, and a 4.1 per cent drop in Saskatchewan.

“Sales are poised to plunge at an historic pace in April, while gradually recovering their lost steps in subsequent months as buyers remain cautious,” the report states.

‘Uncomfortable zone’

In a separate report Wednesday, real estate services firm Altus Group predicted a more than 50 per cent drop in home sales in the April-June period this year, before bouncing back in the second half of 2020, to end the year at around 10 per cent below the previous year’s sales.

Although there is a “broad range of outcomes” possible in these uncertain times, ”it’s very unlikely we’ll see significantly declining house prices,” Altus Group vice-president and chief economist Peter Norman told HuffPost.

“The odds are better that … we might be in a situation where they start to accelerate into the uncomfortable zone.”

He predicts price growth in the 5 to 10 per cent range for this year, because there will be many buyers who will be “ready to buy” once shutdown orders are lifted and social distancing rules start to be eased.

“We think this recession is going to be deep but quick, and the economy will recover quite quickly as soon as we substantially get through the health crisis,” he said.

TD ECONOMICS
This table of home price forecasts from TD Economics shows prices holding up well in 2020 and 2021, despite a major sales slump this year.

‘COVID Clauses’ Await Buyers In Canada’s Housing Market

You may have to prove you’re healthy, and that you haven’t traveled abroad recently, before viewing a home.

KMATIJA VIA GETTY IMAGES
In this stock photo, a woman in a face-mask leans out her front door. Home-buying is changing in the pandemic, with virtual tours and “COVID clauses” now common.

TORONTO (Reuters) ― In Canada’s typically busy home-selling season, wary buyers are donning masks and gloves to view properties while realtors offer virtual tours and coronavirus clauses as the real estate industry copes up with the outbreak.

Canadian home resales are forecast to fall by about 30 per cent to a 20-year low this year, Royal Bank of Canada estimates. Home sales slumped 14.3 per cent in March from February.

Armed with new COVID clauses, some agents are still trying.

The COVID clauses include confirming buyers’ health and recent-travel history and waivers that free the seller and agent from any liability in the event the client gets sick following a property viewing.

Toronto-based agent Alexandra Côté provided virtual tours of about 25 properties, using Skype calls and video tours, for clients recently before they zeroed in on one.

After her clients decided on a property, they and Côté, in masks and gloves, would visit the property in person. “I was actually surprised at how well it worked,” she said.

Lacking the personal touch

For an industry that relies on in-person visits and where purchases are influenced by touch and feel, the social-distancing restrictions have tempered buyers’ enthusiasm.

“Nothing is going to compare to viewing the house in person,” Royal LePage sales agent Tom Storey said. Storey’s team has seen a spike in virtual walk-throughs for their properties, despite having 95 per cent of business on pause.

Vancouver real estate agent David Hutchinson now carries a “COVID kit,” consisting of gloves, masks, hand sanitizer and bleach. He had to recently abide by a rule prohibiting more than two people from entering a building during a property viewing.

Hutchinson has clients complete a questionnaire confirming they have not traveled in the past 14 days and are not feeling sick.

“It’s commonplace now,” he said.

But the Real Estate Council of Alberta is warning against the use of COVID clauses, saying it may not be in the seller’s or buyer’s best interests and advising parties to seek legal advice.

Todd Sanderson, an agent for Royal LePage in British Columbia, said his clients don’t open doors, touch light switches or anything in the property.

“They treat the homes like a museum,” he said.

(Editing by Denny Thomas and Steve Orlofsky)

Airbnb’s Flame-Out In The COVID-19 Pandemic Could Be Good News For Renters And Homebuyers

Signs are growing that Airbnb hosts are selling their properties or renting them out in the apartment market.

JOHN MACDOUGALL VIA GETTY IMAGES
A woman browses the site of home sharing giant Airbnb on a tablet in Berlin, April 28, 2016. Airbnb is in a fight for its life amid the COVID-19 outbreak, but that could be good news for renters and homebuyers struggling with affordability.

Amid all the bad news surrounding the COVID-19 pandemic, there might be something of a silver lining for renters and homebuyers in Canada’s priciest cities: When the lockdown ends, they may find themselves in a more affordable housing market.

And if it happens, it will be in no small part thanks to the sudden flame-out of Airbnb, whose hosts have seen a collapse in revenue as global tourism ground to a halt in the past few months.

Airbnb’s situation right now is about as dire as it could be. Amid the viral outbreak, travelers are afraid to stay in strangers’ homes. Tenants in condo and apartment buildings don’t want travelers coming and going, and some buildings are moving to ban Airbnb listings. Most profoundly, Ontario and Quebec have temporarily banned short-term rentals, the core of Airbnb’s business.

But even before the pandemic hit, changing attitudes and changing rules meant Airbnb owners were facing a much harsher new reality.

One major earthquake for the vacation rental platform came in November, when a new Toronto by-law came into effect, forbidding homeowners from renting out any properties on Airbnb except for their primary residence or rooms in a primary residence.

That rule ― very similar to one that Vancouver enacted in 2018 ― was meant to put an end to the phenomenon of large property owners buying entire chunks of condo buildings and renting the units out through Airbnb. Affordable housing advocates have argued for years that this practice drove up housing costs for residents and led to the creation of condo tower “ghost hotels.”

The by-law change came and went with only a little media attention, but its meaning for Airbnb in Canada is seismic; it changes the business entirely. According to data from consultancy Host Compliance, these “ghost hotel” operators accounted for 30 per cent of the homes listed on Airbnb, but 80 per cent of the company’s revenue. Even before COVID-19, Airbnb was facing a potential revenue collapse in some of Canada’s largest markets.

A sudden boom in furnished apartments

The new rule seems to have had an immediate impact. Toronto saw a 29-per-cent spike in the number of furnished, long-term apartment rentals available in the first three months of this year, according to real estate consultancy Urbanation, which sees this as a sign that Airbnb owners are shifting to long-term rentals ― though that was largely before the impact of the pandemic was felt.

Others believe Airbnb hosts are more likely to sell their units instead.

“They’re not going to hold on to it for the rental market,” said Diana Petramala, a senior researcher at Ryerson University’s Centre for Urban Research and Land Development.

AIRDNA
This chart from analytics firm AirDNA shows a steep drop in demand for Airbnb rentals in Canada’s largest metro areas, with projected revenues down by more than half in Toronto, Montreal and Vancouver.

Short-term rentals bring in far more revenue than long-term rentals, so renting out an apartment on a one-year lease is “a less attractive investment to hold on to,” she told HuffPost Canada. That’s especially true if you’re one of the many homebuyers using Airbnb income to cover a large mortgage. Rent in the apartment market might not be enough to cover that monthly payment.

“So if you can sell (those units) at a really high price why not sell them? More will end up in the sale supply than in the long-term (rental) market,” Petramala predicted.

She noted that the City of Toronto saw a more than 8-per-cent increase in listings of homes for sale in March, while the region’s suburban cities ― where Airbnb listings are few and far between ― saw virtually no increase.

It all amounts to a sudden injection of new housing supply ― at a time when demand is drying up because of an economic crisis. That will put downward pressure on housing prices, Petramala predicted.

How much could this help buyers and renters?

It’s hard to predict exactly, especially given all the other economic upheavals taking place right now, but we have data to give us an idea of the scale of things.

study from housing advocacy group Fairbnb estimated earlier this year that the by-law the city enacted last year would result in 6,500 homes being added to Toronto’s housing supply, if the rule was fully enforced. If they all arrived at once, it would more than double the number of active home listings to choose from.

2018 study in the U.S. found that a 10-per-cent jump in Airbnb listings in an area increased rents by 0.4 per cent. If that dynamic reversed itself, a collapse in Airbnb listings could mean several percentage points off average rent.

But even if it means more affordable housing, some question whether Airbnb’s decline is a good thing. Scott Chatford, CEO of analytics firm AirDNA, argues that in a time of economic crisis, many people could generate additional income by renting out a second property or a room in their home on Airbnb.