Royal LePage is forecasting that if COVID-19 stay-at-home restrictions are eased during the second quarter, house prices will finish the year up by one per cent year-over-year, to an aggregate value of $653,800. If the restrictions continue through the summer, the negative economic impact is expected to drive home prices down by three per cent to $627,900, the company says.
“The impact of COVID-19 on the Canadian economy has been swift and violent, with layoffs driving high levels of unemployment across the country,” says Royal LePage president and CEO Phil Soper. “While is it 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.”
In explaining why the company doesn’t foresee a large price drop, Soper says, “Home price declines occur when the market experiences sustained low sales volume while inventory builds. Currently, the inventory of homes for sale in this country is very low, matching low sales volumes as people respect government mandates to stay at home.
“It is easy to mistakenly equate a handful of transactions at lower prices to a reset in the value of the nation’s housing stock. Distressed sales that occur during an economic crisis are a poor proxy for real estate value,” says Soper.
“As we ease out of strict stay-at-home regimens, sales volumes will return; traditional home sales practices will not,” he says. “The popular open house gathering of buyers on a spring afternoon is gone, and it won’t be coming back any time soon. The industry is leveraging technologies that allow a home to be shown remotely and social distancing protocols, where we restrict client interaction with our Realtors to limited one-on-one or two meetings, will continue for months and months. This process is inherently safer than a trip to the grocery store.”
Looking ahead, “If the fight against the coronavirus requires today’s tight stay-at-home mandates to remain in place for several months more, with no semblance of normal business activity allowed, temporary job losses will become permanent and consumer confidence will be harder to repair,” says Soper. “This would place downward pressure on both home sales volumes and prices.
“Equally, if the collective efforts of Canadians slow the spread of the disease to manageable levels, and if promising science and therapeutic drugs are announced, people will return to their jobs, market confidence will bounce back quickly, and we could see Canada’s real markets roar back to life, with 2020 transactions delayed but not eliminated.”