|The Canadian real estate market could be heading for a crash due to Covid-19 as the country’s consumer confidence index set a historic slide of 38.7. / Photo by: Watchara Ritjan via Shutterstock|
The Canadian real estate market could be heading for a crash due to Covid-19 as the country’s consumer confidence index set a historic slide of 38.7. It is, by far, the lowest reading in Canada’s confidence index since the poll started in 2008.
According to the Bloomberg Nanos Canadian Confidence Index, a measurement of the economic mood of Canadians on the strength of the economy, job security, personal financial situation, and real estate in their neighborhood, four in 10 Canadians are pessimistic about real estate in their country. The index fell sharply for a fourth week as the lockdown led to mass layoffs.
The housing sector in Canada
Signs of troubles were also observed in Canada’s housing sector. Some 41% of the respondents expect home prices in the country will decline, the highest percentage since the biggest economic downturn in 2008. In March, the number was only at 13%, reports New York-based media company Bloomberg.
A housing market correction, which means a rapid change in the price, would deepen and compound what already appears as one of the “sharpest economic contractions” due to the pandemic. An economic contraction is caused by a loss in confidence that slows the demand. The last time Canada experienced this kind of economic downturn was during the Great Depression. Before the Covid-19 outbreak, the real estate sector was a major source of wealth for millions of Canadians and a major contributor to the country’s economic growth.
|Before the Covid-19 outbreak, the real estate sector was a major source of wealth for millions of Canadians. / Photo by: NESPIX via Shutterstock|
Canadians’ economic anxiety
Canadian-based Nanos Research Corporation usually conducts a random interview with 1,000 Canadian consumers, 250 Canadians every week. They are often asked for their views on their outlook for the real estate prices, the economy, job security, and their personal finances.
Almost four of five (79%) respondents believe that the economy of Canada will continue to get worse in the next six months. Last week, the number was only at 74% and showed more than double the historical readings for this question. In the 2008 financial crisis, 57% of respondents thought their economy would get worse.
Furthermore, 36.9% of Canadians said that their finances worsened over the past year, also a high record. There are also 22.3% of respondents who are worried about job security in Canada, the highest number since 2013. These Canadians said they are somewhat concerned that they may lose their job because of the pandemic.
Nanos Research went on to explain that the sudden decline in the confidence index happened because of the shutdown in the economy. Canada’s Employment Minister Carla Qualtrough recently said that the government received 5.62 million emergency benefit claims, which includes applications to a new program for business owners and workers who have lost their income because of the Covid-19-related shutdowns.
Bursting of Canada’s real estate bubble
Real estate company RE/MAX Canada also posed a question of whether the Canadian real estate market is heading for a crash. The company said that the impact of novel coronavirus on the global economy has, so far, been “moderate” except the stock market that experienced the biggest decline. In a press release, the real estate company said that the housing markets in the country may not have shown signs of the same trajectory as the stock market but plans of purchasing homes have been put on hold.
On the other hand, for people who have the money, “real estate has never looked more enticing” as they are looking for a sounder area to invest their money with the uncertain condition that is happening in the stock market. To burst the real estate bubble or for it to collapse, there needs to be an influx of supply and stagnant demand. It believes that the real estate market in the country remains relatively strong, though this does not reflect in the Canadian Confidence Index.
“The odds of a bursting bubble are low, at least in the short term,” RE/MAX Canada continued. Meanwhile, real estate agency Real Estate Board of Greater Vancouver (REBGV) shared in its recent market report that there was a slowdown in the real estate market at the end of March 2020 because of the intensified concerns about the pandemic.
In the first 10 business days of March, daily residential sales of REBGV were 138 on average but it declined to 93 sales in the final ten business days of the same month. The agency covers real estate in Vancouver, New Westminster, Burnaby, Whistler, West Vancouver, Coquitlam, North Vancouver, Port Coquitlam, Port Moody, South Delta, Squamish, Pitt Meadows, Sunshine Coast, Maple Ridge, and Richmond. They recorded a total of 2,524 sales in March 2020, a 46.1% increase from their March 2019 sales. REBGV president Ashley Smith believes that they will need more time to pass before they can fully understand the impact of the Covid-19 on Canada’s housing market.
Housing units sold in Canada
Database company Statista shares that there was a total of 458,477 housing units sold in Canada in 2018 and 486,800 units the following year. Without the pandemic, the forecast housing units to be sold this year are supposed to be 529,900.
The housing affordability index of Canada in the first quarter of 2018 was 0.354, which gradually declined to 0.351 in the second quarter. In 2018 Q3, it was 0.352, 2018 Q4 was 0.356, 2019 Q1 was 0.35, 2019 Q2 was 0.336, and 2019 Q4 was 0.348. The index measures the share of disposable income that a representative household would put toward housing-related expenses. The statistics were provided by the Bank of Canada.
In 2016, there were a total of 14,072,080 occupied private dwellings in Canada, comprised of 53.6% single-detached houses, 9.9% apartments in a building that has five or more storeys, 18.0% apartments in a building that has fewer than five storeys, and 5.6% apartments or flats in a duplex, reports Canadian government agency Statistics Canada.
The Canadian housing market started strong this year but industry experts are now observing the potential impact of the pandemic on the market. Job losses in the country have also been evident and current homeowners are concerned about the possible economic turmoil. If the shutdowns last long, many homeowners may be forced to sell their property although the government’s move of passing an aggressive bailout package may prevent it from happening.