Amidst the COVID-19 pandemic, even the experts could not have predicted the strength of the Canadian real estate market – of which includes record high prices and fierce bidding wars – all in the face of double-digit unemployment across the country. “Our views are changing,” says Robert Hogue, a senior economist with Royal Bank of Canada. “The strength in the summer was quite a bit stronger than we might have thought. Clearly, there was pent-up demand from March and April, but we didn’t think it would pop that much.”
WHY ARE PRICES INCREASING?
Of course, a major factor in the overall increase in home sales reflects the record-low mortgage rates we are seeing currently. The prime rate this year has gone down to 2.45%, a sharp decline from 3.95% from last year. Canadians have been able to purchase more expensive homes with the same monthly payments as in the past. Government support programs such as CERB and CEWS have also supported household incomes.
DETACHED HOMES MORE DESIREABLE
In keeping with supply and demand, the single detached or low-rise market may continue to see price increases, however the big-city condo segment is expected to be most vulnerable to post-COVID volatility. As we see a shift from physical offices to virtual/home offices – the demand for larger spaces have increased. Additional factors such as declining immigration and a softer rental market have also played a role in this trend. In June, this year there were 19,000 permanent residencies granted, a decline from 34,000 from the same time last year.
In the beginning of 2020, we witnessed condo prices outpacing that of detached homes. The first quarter of 2020 showed new condo prices in the Greater Toronto Area (GTA) up 14.6% from last year, and resale prices up 8.5%, according to data from Statistics Canada. In Ottawa, the increase was 22.6% for new condos and 15% for resales. Vancouver however, had experienced slight decreases year-over-year. According to the Real Estate Board of Greater Vancouver, apartment home sales had increased year-over-year in August (1,332 versus 1,095), however the shift to detached homes were up 55.1% in comparison to apartments – a modest 19.4%.
THE TOLL ON THE CONDO + RENTAL MARKET
Although we are seeing overall increases in pricing and sales activity, the condo market segment has been trailing behind other home-types since March. “We were seeing stronger sales on the single-detached front,” says Jason Mercer, chief market analyst for the Toronto Regional Real Estate Board (TRREB), “and we’re also seeing more listings coming on for condo apartments, so that’s moving toward a more balanced market.” The shift to suburban locations and preference for more space has also taken a toll on the condo rental market. Rent prices have been declining due to higher vacancy rates and renters are seeing more favourable rent conditions.
The Canadian Mortgage and Housing Corporation (CMHC) has purchased $5.8 billion of insured mortgage pools this year in preparation for COVID-19 related mortgage claims. As of July 1, the CMHC has introduced stricter underwriting criteria – which includes more rigorous credit checks and tighter down payment requirements for insured mortgages. It is safe to say, that for the time being the condo market will continue to see short term uncertainty until a COVID-19 vaccine has been introduced with proven results. The long-term effects of this emerging trend are yet to be determined.
If you are buying into the Canadian condo market, it is imperative that you adequately insure your asset. In fact, most provincial condominium bylaws mandate that all condominiums are insured to their total replacement cost value.
The only way to determine accurate replacement cost is by obtaining an insurance appraisal by a professional 3rd part firm, like Normac. Doing so means you will always be sufficiently insured in the case of a total loss, that you can receive better terms and insurance rates, and that you fulfill your fiduciary duty set by your provincial condominium bylaws.