It’s easy to go down a rabbit hole of analysis about how COVID-19 is impacting the market and what comes next. If we cut through the noise, we can see there are absolutely going to be winners and losers in real estate over the next few months. Most of it is out of our control, but there are a few ways in which you can make sure you aren’t negatively impacted by our new reality.
When we consider what the next few months are going to look like in real estate, it’s clear that it isn’t business as usual. These are unprecedented times and it is already impacting our real estate market in the GTA and will certainly continue to do so.
Let’s start with who are going to be the Winners in real estate over the next little while.
First and foremost, healthy people are going to be winners over the next few months. While the severity of the symptoms of COVID-19 vary from person to person, you can’t be active in any endeavour if you’re sick and don’t have the energy to focus on next steps.
This may sound obvious, but we will see some people sit out on real estate over the next while because they just don’t feel well. Despite the rumours, Realtors are also human, so if an agent is under the weather, showings get cancelled and listings are delayed.
The only way to take advantage of opportunity and to avoid pitfalls is to be at your best. Follow good health practices and you’re in the right position moving forward.
The next winner when it comes to the real estate market are sellers of townhouses. A bit less obvious, isn’t it? Let’s take a look at the average sale to list price in Toronto in the last week.
First off, let’s get rid of one theory that some people love to put forth, namely that real estate prices are going to collapse as no one buys during this challenging time. Across the board, homes are selling for high prices and quickly.
Detached homes that sold in Toronto in the past 7 days (March 13th to March 20th, 2020) sold for, on average, 107% of their list price. Semi-detached did even better, at 110% of their list price. The big winner was townhouses, at 113% of their list price on average.
Condos actually sold for the least over asking, at 106% of their list price. While condos continue to be the only affordable option for lots of buyers, the environment in condos is less ideal now than a single family freehold home. Sharing common areas, entrances and exits, elevators and hallways – it is unavoidable but not anyone’s favourite activity right now.
The push we’re seeing on townhouse prices will also be seen on the lower-priced semi-detached homes that come on the market. Buyers who were on the fence as to whether a condo apartment or a townhouse or semi were the best option will look harder at the cost to move up to a freehold property. Make no mistake, buying is an emotional activity and the health and safety of your loved ones hits the right buttons to push people towards a property that isn’t as ideal overall if it feels safer.
Finally, buyers and sellers who hire informed, adaptive Realtors are going to be winners.
Consider a buyer who needs to find their next home who has hired the right Realtor to help them. They see properties with confidence because their agent has come prepared with supplies to follow handwashing and sanitizing guidelines established by health officials. They stay healthy, as does their agent, they see properties and find the home they want to buy.
The seller who is listing their home needs to have hired an agent who does things differently now. Virtual tours and online marketing are more crucial than ever, as are prudent steps to ensure in-person visitors follow good practices such as refraining from touching any surfaces in the home. Post-visit sanitizing is not complex or expensive but requires preparation.
Whether it is the buy or sale side, their agent understands the various points in a transaction where a deal can be delayed or run into issues now and proactively contact the professionals involved (property managers, lenders, lawyers, home inspectors, appraisers) to make sure adequate time is set aside for the deal to progress smoothly.
Not everyone who is in the real estate market now or over the next while will be a winner. Let’s look at some people who will not fare as well.
Sad to say, the people who will lose the most in the market over the next little while are people who have had their financial footing knocked out from underneath them.
Within our brokerage, we are seeing buyers step back from the market due to the turmoil in the stock market. If you look at the S&P/TSX Composite over the past year, you can see that for many people, the value of their investments took a sharp drop in March.
If you were relying on those investments as the source for your downpayment, or if you were basing a move on your current financial worth, the past few weeks may have made you change your mind.
At the same time as the markets have taken a hit, we’ve seen certain industries be decimated by the COVID-19 pandemic. Any work that involved groups and socializing, such as bars, restaurants or entertainment venues, has seen a huge impact over the past few weeks. Individuals who were employed in these sectors are suddenly on the bench and uncertain as to what comes next. That means that real estate moves seem very risky and are likely to be postponed.
Note that we’re saying these people will lose out because we believe that real estate prices will continue to grow this year. The sudden drop in mortgage rates and very low levels of inventory mean that buyers are competing for what’s out there, which means prices go up.
The next group who are going to lose out are people who panic about the market. This means both buyers who think this is their only opportunity to buy and pay anything to get a home, as well as sellers who give in to worry about what is happening and take a lower-priced offer just to be done with it.
Those seem contrary, but both are taking place in our market right now. There’s also a third group, which is comprised of people who think that this is the beginning of a massive real estate crash and who wouldn’t buy now if their lives depended on it.
Time will tell who is right about what happens next in the market, but anyone who gives in to panic and overpays on a purchase or underprices their sale will be losing out. The fact that we are seeing both in the same market means that one group is going to be wrong. Those that are able to remain calm and work with an experienced, knowledgeable Realtor can make sure they don’t make a purchase or sale they regret.
The final loser in our real estate market might be a surprise. Investors are not likely to be big winners over the next little while.
We regularly work with investors and whole-heartedly believe real estate investing is an excellent foundation for wealth. That being said, regular market forces when it comes to rental properties are being impacted by the COVID-19 situation.
Earlier this week, the Ontario government announced it was temporarily not issuing any new eviction orders due to COVID-19 and it was halting the enforcement of evictions. Many of those most impacted by the closing of business are tenants, who suddenly have no income.
Regardless of the legality of actions that landlords can take, the optics of punishing tenants for their inability to pay due to the pandemic are very unflattering. In the US, we’ve seen stories of homeless families seizing vacant homes, with it being positioned as a health requirement.
Investors over the next few months will face more rent payment issues and less ability to enforce payment requirements. There may be some financial relief at some point for those landlords who had tenants unable to pay, but in the meantime, mortgages and expenses will continue to accrue for the owner of the properties. Even with banks offering some leniency on mortgage payments, it is unclear if owners of income properties will receive the same consideration as an owner occupied home.