Predictions for the post-COVID-19 housing market! #Ottawa

It is not easy to predict the future; it’s always a lot easier to predict the past. But here are my thoughts about what is going to happen to the Ottawa real estate market, post-COVID. I thought it was worth putting them in writing and that way we can check back in a year and see whether I was right or wrong. (My daughter and I do this every New Year’s Eve: we sit down and predict the next twelve months and what we think will happen to each of us individually and then to Canada and the world. It’s always an interesting exercise!)

First of all, as you can imagine, with the pandemic, there are fewer listings on the Ottawa real estate market than ever. In a normal year, before the mortgage stress test was introduced,  we’d probably see around 250 new listings a day this time of year. It’s our busy season.

The mortgage stress test really put a kibosh on that. Initially, it applied to first time buyers only. Then it was expanded to apply to everyone, and it had the effect, paradoxically, of driving up prices in centres like Ottawa which had affordable housing.

Older sellers who couldn’t afford to buy first and then sell because of their inability to borrow (the new financing rules are based solely on income, and don’t care about equity)  stayed put. Meanwhile, foreign investors began looking more closely at Ottawa because of the foreign buyers’ taxes in BC and the GTA.

With first time buyers unable to get financing either, they had to rent longer. That meant there was more interest on the part of investors in properties under  $ 400K which suddenly became cash flow positive due to higher rents.

New listings dropped by around  40%, and we had a super-heated market.Properties sold with multiple offers all over the city and prices went a little nuts. But we could still anticipate seeing around 150 new listings a day; it’s just that they were being snapped up. Anything decent where the agent hadn’t held off on offers was selling in a matter of  hours. If they held off on offers, their listings generally sold the same day offers were presented, firm, with no conditions. It became very rare to see a conditional sale. If a property hadn’t sold in a week, there was something wrong with it.

Here’s the  Home Price Index graph for Ottawa that shows the price increases starting with the application of the mortgage stress to first time buyers in 2017,  and then you can see how prices accelerated when it was applied across the board a year later:


Those price increases correlate to lower supply. And since COVID-19, the number of new  listings is even lower than ever. There were only 17 new listings in Ottawa today. 17! That’s a tenth of what we had following the stress test, and remember, the numbers then dropped by 40%.

No-one is really listing right now unless they have to. Which makes sense. Most people do not want strangers wandering around in their homes, even if many realtors are now using virtual tours. But there are still people who have to sell: properties are vacant, or people are splitting up, or moving, or whatever. With inventory this low, even if there aren’t as many buyers, there are still serious buyers around. So, we are still seeing multiple offers and properties are still selling above list price.

I was involved in a bidding war last Friday where a condo got 12 offers and sold, with no conditions, for $ 42K over asking. The week before that, I put another offer in on a condo unit that got 6 offers and sold for $44K over asking. Pre-COVID-19, perhaps  those properties would have sold with even more buyers putting in offers, because of the superhot nature of the Ottawa real estate market pre-pandemic, but both were record sales for their complexes.

Meaning, there are no bargains yet. Which brings me to the question: what will happen post-COVID-19? What happens when the lock down ends? What happens when the pandemic is over? Will prices drop then? Stay the same? Go up?

Okay. Here’s my crystal ball.

I think a lot of sellers are sitting on the sidelines right now, but so are a lot of buyers. Sellers are even more uncertain,  afraid that if they sell, they may not be able to find anything.   The mortgage stress test is still there and still making it hard for self-employed people and those who are semi-retired to qualify for financing. That may be even harder now because of employment disruptions and the impact on stock markets.

Older people who would like to downsize are not going to sell until they are sure they can find a new home. And with all the pressure on people’s incomes (and the banks) due to COVID-19, I don’t think finding financing to buy a new home if you haven’t already sold yours is going to get any easier.

I know some buyers who think that we may be heading into a Great Depression and that prices will have to drop. They are holding off on buying, waiting for those bargains.

To be honest, I don’t see it. This is a short term global shutdown that will start to reverse very quickly once a vaccine or therapeutic treatment is found. (Can you imagine that day, and the sigh of global relief?)There are scientists all over the world working on doing that right now. I think the 12-18 month estimates we’ve been given for how long it could take are way off. I think we’ll have a therapeutic treatment  this fall: we’ve never had this kind of money thrown at a problem before or so many brilliant people working collaboratively to find a solution.

Once they do, once this ends, I think that Canada will look like a safe haven to a lot of people, certainly a lot of Americans, because of our universal healthcare and the economic support our government has provided.  I think a lot of them will see Ottawa as an attractive place to live, so I expect to see our population grow quickly.

I also think that people are doing some hard thinking during the pandemic  about where they want to live when it’s over, who they want to live with, and how they want to live. There will be more divorces, more pregnancies, more people deciding they want to live closer to families in case this happens again, more young couples in small units realizing they want bigger yards, renters who have been cooped up in units where they have felt trapped, wanting to own their own homes.

So, I think there will be a lot of pent up demand when this pandemic ends. But we still won’t have our usual volume of listings because that mortgage stress test will still be in place (although we may see more power of sale properties). Buyers who can’t afford to buy will still have to rent, so lower priced properties will still be of interest to investors, maybe even more so with stock market upheavals. In that sense, not much will change.

Sellers who can’t get financing to buy their next home will continue to stay put, until that mortgage stress test is changed. Meanwhile, there are still lots of serious cash buyers out there and maybe even more if I’m right about foreign investment.

Those people who were hoping for bargains could end up disappointed.

My prediction? I think prices will hold and that we may see a modest increase despite the pandemic. Much of that will change if the mortgage stress test is removed, however, and it could well be, since there is no real prospect of an interest rate increase for years to come, and that’s what it was supposed to protect against: buyers getting hit with interest payments they couldn’t afford when interest rates went up.

Remove the mortgage stress test, or restrict it to only first time buyers, as it was initially, and I think we will see a far more balanced Ottawa market. But until it changes, I think volume of sales will be way down, but prices will continue to hold steady and increase despite the pandemic.

I’ll let you know in a  year if I was right!

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