March 2020 will be remembered for a long time, and not for predominantly good reasons. COVID-19 was officially declared a pandemic by the WHO in March, and began to eat into the fabric of life as we knew it.
You have been bombarded with disturbing news about the impact of this pandemic on residential real estate; however, it’s not all bad.
Thinking of buying a house in Canada this year? This post shows you five unusual effects of the pandemic on residential real estate that can be used to your advantage.
1. Residential Areas Close to Business Hubs Have Become Less Attractive
COVID-19 is reversing real estate trends. Residential real estate at the heart of business centers are becoming less attractive. Why?
For one, many companies have their staff working from home. This means fewer employees need to live close to these business hubs which are typically very expensive.
Again, Airbnb has become less operative around these business centers; hosts are listing out their homes at discounted rates and for longer terms than usual.
What should be your reaction as a potential investor? Maybe it is better to stay away from these areas for now, as they may still witness a drop in house prices.
2. There is Less Demand for Houses in Large Cities
Although unusual, it doesn’t take rocket science to explain why there’s less demand for houses in large cities.
Ontario for instance, welcomes over 100,000 immigrants yearly. The pandemic has slowed the flow of immigrants significantly this year, and this means less patronage for real estate in Toronto, Vancouver and other large cities that are popular immigrant destinations as can be seen in the recent Canada housing market report.
With better remote work structures, there is less need for people to live in large cities where big corporate offices are generally located. Also COVID-19 might just be the last cue for older North American residents to move out of these large cities that put them at increased risk of being in crowded spaces. Also there is a motivation to save money by not paying large annual property taxes of large cities mainly because of their high property prices. For example by moving out of Toronto, people will also save by not paying a relatively large Toronto property tax.
3. Residential Real Estate in Rural Areas Have Become More Attractive
Yes! You heard that correctly. Prior to now, it would be difficult to project how rural real estate could overtake urban real estate in terms of attractiveness, but that’s exactly what’s happening. Here’s why:
Farmers, diary producers and other essential food businesses are often concentrated in these rural areas. Since the pandemic has affected the supply chain system, the prices of agriculture and dairy products have increased. Consequently, those whose businesses revolve around food supplies are making better revenues. This potential increase in their income has made the rural real estate market to become more attractive.
4. Mortgages are Being Offered at Historically Low Rates
Between January and May 2020, the Bank of Canada has slashed its benchmark rates from 1.75% to 0.25%. With the BoC’s rate close to zero, prime rates have dropped significantly. Also, low government bond yields have started to impact fixed mortgage rates, causing a gradual reduction in them.
If you plan to buy residential real estate in Canada now, you’d only be paying less in comparison to what you’d have paid for a mortgage, only 6 months ago.
5. Real Estate Prices Are Dropping, but Gradually
Compared to other asset classes like the stock exchange market, the drop in prices of real estate always happens slowly. With the Government of Canada’s response to COVID-19 via the CMHC’s Mortgage Deferral Program, there has been a prolonged delay in COVID-19’s real estate impact. This is because this program allows homeowners to defer mortgage payments by up to 6 months. So, we haven’t seen the full impact of the pandemic on the real estate market yet.
If you want to buy a house in Canada this year, note that:
- Residential real estate close to business hubs have become less attractive. Stay away from them for now, as home prices may still drop.
- Remote work has led to less demand for houses in large cities
- Real estate in rural areas has become more attractive and also may become more expensive.
- You may get a really good deal on mortgage rates now if you have a good credit score, as mortgage is being offered at historically low rates.
- Real estate prices are dropping gradually. Allow for more time for us to feel the full impact of the pandemic on real estate prices.