A Twitter pal asks: “my condo went up in value in recent years. Will I lose all those gains because of COVID-19?”
I don’t have a crystal ball, so all I can do is give you my best guess for the short term and long term.
You note that your condo increased in value. It sure did!
Ottawa real estate was under-valued for a long time. Some of the increase in prices was due to new job creation and people moving here from elsewhere to work or retire. Also, the mortgage stress test made it very hard for self-employed or retired sellers to get financing to enable them to buy a new home before they downsized. A lot of older people were afraid of listing their homes in case they couldn’t find anything they liked.
It was harder for first time buyers to borrow money, so they had to rent for longer periods. The rental market got very hot as lower priced properties were snapped up by investors, driving up prices. The Ottawa real estate market saw double digit increases for the first time in decades, due to low inventory.
But now we are facing COVID-19, so things are changing fast.
Even though realtors, real estate lawyers, moving companies and the land registry office have been declared essential services during the shutdown, it’s far from business as usual.
The Ottawa Real Estate Board office is closed. Brokerages are closed. People are working from home, and that’s not easy to do in a business that relies heavily on face-to-face meetings and in person viewings. The numbers of listings and firm sales have dropped dramatically in recent days. Some listings have been cancelled by nervous sellers who don’t want strangers wandering around in their homes.
That said, there are serious buyers out there who have no choice but to buy, and sellers who have no choice but to sell. So if anything inventory is even tighter than it was in an already super hot market. As a result, sales prices in the past few days are still high and I am still seeing multiple offers, although generally, properties are getting fewer showings and fewer offers than they would have even two weeks ago.
So, at this point, I don’t think your condo has dropped in value. If you had to sell today, you would probably find a buyer, but not have the same frantic activity we saw a few weeks ago. A few weeks ago, things were a little crazy! How long that continues, or whether we start to see a major drop in sales/prices is hard to say. Much depends on how long this shutdown continues and what happens internationally.
Over the next few months, unless a vaccine is identified, I expect to see a drop in sales volume and an increase in how long it takes to sell a property, as more buyers stay home. But there are still buyers who absolutely need to buy, and have financing or cash, which is why I think we won’t see much of a price drop, at least for a while.
It’s only if we get smacked with a recession, or something akin to the Great Depression, that I think we’ll see the market start to slide. I can’t see how Ottawa could be immune from those kinds of global impacts. Depending on how quickly economic relief rolls out, I expect to see more power of sale properties hit the market.
That said, we still have another wave of LRT construction ahead, and we have a lot of people employed in universities, hospitals and the public service, so we have a more stable real estate market than many other cities. If Canada handles this crisis well, Ottawa may become even more of a destination for foreign buyers.
And with so many scientists working world-wide to combat this virus, we have every reason to believe they will find a vaccine or even a cure quite quickly, given these intense international efforts. Infectious disease experts and epidemiologists are telling us to expect that to take a year or eighteen months: my guess is that they will get it done sooner.
At that point, the Ottawa fundamentals will still be there: great city, educated population, safe, good place to raise kids, great place to retire, stable workforce, affordable housing. And things can start to return to normal.
It’s worth noting that after SARS hit Toronto hard in 2003, there was no real negative impact on the housing market at all:
Interestingly, housing sales data from 2003 in Toronto show no apparent signs of suffering. Sales increased to 78,898 units in 2003 from 74,759 units in 2002. Similarly, the average sale price increased by around $18,000 during the same time period. Essentially, the growth in sales and prices in 2003 was in-line with long-term trends.
I hope this helps!
This was the third in a series of COVID-19 related blog posts — keep those questions coming!