With WHO officially declaring the coronavirus a global pandemic on March 11th many governments, including our own, have decided to take necessary precautions to keep the public as safe as possible. While no one can answer with certainty how the coronavirus will affect the GTA housing market, I believe that we can look at some clues and make a fairly accurate prediction.
The GTA real estate market is tied in large part to the economy, unemployment rates, interest rates & the need for housing. Let’s look at each of these factors in detail.
The economy will undoubtedly take a hit from the fallout of the coronavirus pandemic. How big of a hit the economy will take is the question. Scotiabank economists have predicted that Canada could be heading for a mild recession by the fourth quarter of 2020 without a fiscal stimulus. (Click to view press release) Typically in times when there is a recession housing prices tend to go down.
Low unemployment rates in Ontario (5,6% in 2019, lowest since 2000) have been one of the drivers for the real estate market over the last several decades. If a recession does occur, the unemployment rate will climb reducing the demand as the number of people able to afford buying into the market would diminish.
On March 4th , the Bank of Canada cut the interest rate by 50 points. On March 13th , it made another rate cut of 50 point reducing the rate to 0.75%. These moves taken to support the economy by easing the interest rates will help stimulate the real estate market. Lower interest rates mean lower mortgage payments and higher affordability.
The need for housing is still there
People still need a roof over their heads and Canada, more specifically the GTA, is still one of the most desirable places in the world to be. That’s not going to change with the coronavirus pandemic.
The new stress test being rolled out in April of 2020 will also be a buoy for the GTA housing market as it relaxes the previous stress test that was put in place to slow down the market. The purpose of the stress test is to ensure that the mortgage borrowers would be able to afford their mortgage payments if the interest rates were to go up by a certain percentage.. The new stress test reduces that additional percentage by about 30 basis points, thus increasing the number of people who would qualify for a mortgage.
To summarize, while the slow down in the economy and the possible increase in unemployment rates point to a possibility of a slower real estate market in the coming months; the lower interest rates, relaxed stress test and a strong need for housing would likely counteract that. Uncertainty like the coronavirus pandemic usually causes real estate markets to stall. As COVID-19 is starting to affect every element of daily life in the GTA it will is likely to cause a disruption in both supply as well as demand in the real estate market. If this happens, we would probably have a reduction in the number of transactions as well as in inventory levels meaning that the market would likely either remain similar to what it is right now or it could become slightly more balanced than it’s been in recent months.
As to how long that will take, we’ll just have to wait and see.