When COVID began, many Canadians were stuck at home, desperately trying to find space for a home office. Many more sought to take advantage of their new work-from-home arrangements and move somewhere less expensive. These changes in housing needs, along with rock-bottom interest rates, ignited a fire in the Canadian real estate market.
But is all of that coming to an end?
I think so. And here are my three reasons why the COVID real estate boom is coming to an end.
Inventory Creeping Upwards
This month, the Canadian Real Estate Association’s numbers show that we may be turning a corner in Canadian real estate. Prices are still strong, but national home sales are down month-over-month in nearly 85% of all markets.
And most significantly, for the first time since COVID began, housing inventory has begun to rise—albeit, slowly.
As inventory builds up from rock-bottom lows, buyers may start to have more options when shopping for a home. The availability of choice is something we haven’t yet seen over the past year when bidding wars and bully offers were the norm.
In my own region, I’m also seeing some signs of declining demand. This is most evident when looking at cancelled listings, where typically, sellers are having to re-list at a reduced price. This behaviour is common when sellers are pricing too aggressively, and are not getting the interest that they had hoped for.
Demand for residential real estate is still high, but these recent numbers show that we may have turned a corner. The buying frenzy that occurred over the past year may have peaked in March, and we could be trending to something more resembling normalcy in the months ahead.
Spending Alternatives
Canada is finally making significant progress on vaccinations. Pfizer sent us 4 million extra doses this month which has helped our first dose vaccination rate rise to nearly 50%. You probably have multiple friends and family members vaccinated by now, and may even be vaccinated yourself—I know I am.
As a result, you, me, and every other Canadian are starting to feel more confident about the economy. And the anticipated changes in demand have the travel, entertainment, and hospitality industries preparing to bounce back stronger than ever. Some airlines, like Air Canada, have even started to relaunch routes that were suspended due to COVID.
With Canada opening up, we will see real estate go from being the only thing to one of many things competing for our time and dollars.
Seasonality
Summer marks the beginning of the end of the real estate buying season. Savvy homeowners and their agents prefer to list homes for sale in the spring when demand for homes is strongest. By the time summer rolls around, many of the homes available for purchase constitute “what’s left”. This can weigh negatively on prices until the market heats up again the following year.
Because the COVID real estate boom has been unstoppable, a lull in the market would represent a real change in sentiment. It would work to break the impression that real estate prices will march ever higher, and help alleviate some of the “FOMO” infecting the market.
This change in sentiment could have a huge impact. And with it, I think we’ll see a bit of normalcy return to the Canadian real estate market in the months ahead.
Thanks for Reading!
I hope you enjoyed my thoughts on where the real estate market is headed next. I recently wrote a few articles that you may be interested in. This includes my article explaining how to get cash back from your realtor, and my guide to closing costs in Canada. Consider giving those a read if you think they may help you on your financial journey!
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I hope you are right as this craziness scares me a lot. But, you didn’t count in the new number of potential newcomers in 2021 and 2022. That might re-trigger the jump in the prices. Government don’t fully plan how it is going to accommodate the 100s of thousands newcomers to Canada and we all feel the impact. Some planning and preparation needs to be done.
And yes. As soon as I heard about Pfizer and it opened up for my age, I got myself vaccinated. Felt crappy the first 2 days but nothing major.
That’s a really good point, Mr. Dreamer. It’s hard to say what the future holds for interest rates, but almost certainly we’ll see a surge in immigration in the years ahead. This is partly why I’m long-term bullish on Canadian real estate. There’s simply too much demand, and a lot of that demand is from immigration.
Thanks for sharing your thoughts on the real estate boom, AL! I’m not as savvy when it comes to the real estate market, so it’s great to get your insight on it. Just from my observation, I could see this happening as well. At some point, interest rates have to start creeping up as well.
Hi Graham! Yea, interest rates are another wild card. The Bank of Canada hinted they might start to raise rates a little sooner than people expected – sometime in 2022. But that’s still so far off. We’ll have to keep watching and see what happens!
It does look like the price appreciation is slowing down. The months of inventory is a good data point to keep watching. 🙂 I wonder if potential rising interest rates could also put a damper on things next year.
Hi Liquid! That’s my impression as well. I know you have your finger on the market, being that you’re a condo investor now :). I’m looking forward to your next update on that topic. Your last one showed some excellent numbers – keep it up!
These are interesting, valid observations. It’s so hard to say where things are headed, given all the extenuating factors. For young buyers’ sakes (and to help lower my property tax bill) I would definitely love to see a cool down!
My husband and I were just vaccinated yesterday—woo hoo! And both my kids are now registered and ready to go, once their age group gets to go-ahead to book an appointment. We’re slowly creeping back to normal.
Congrats on the vaccination, Chrissy! And you’re so right. It’s impossible to know where things are heading. For housing, the most important factor by far is interest rates. Where rates go, the market follows! So all of my arguments could be moot if rates drop even more (is that possible?) or spike. We’ll have to see what happens!