During these unusual times many investors, home owners, and individuals are looking for any signs that may point to what the future holds for the Greater Toronto real estate market and the overall health of the Canadian economy. Although there are no clear-cut answers, this article will provide a brief overview of the current implications of COVID-19 as well as what we can expect in the coming few months.
The COVID-19 Pandemic
COVID-19, a highly contagious new strain of Coronovirus that was discovered in late 2019 has taken the world by storm - so far having infected over 220,000 individuals and resulting in over 10,000 deaths. With rapidly increasing numbers, cities around the world have announced a state of emergency and implemented closure of all non-essential businesses and, in some cases, mandatory self-isolation. While scientists are trying to create a vaccine or cure for the virus, some predict that the impact of coronovirus will be multifaceted, hurting not just global health care systems but the global economy, in turn affecting the lives of billions of people around the world, even those that did not come into contact with the virus.
The Economic Impact
With major businesses closing storefronts and manufacturing facilities, lay-offs and major unemployment are no surprise. It was not long until global stock markets felt the downturn. Major US stock indexes dropped around 30% from their peak and the Toronto Stock Exchange Composite Index dropped 31% - all in less than 30 days. As we enter bear market territory, an economic recession is at the forefront of many investors' minds.
The Government of Canada Introduces $82B in Aid
As stocks plunge and millions of people are being laid off, the Government of Canada, both on a federal and provincial level, has taken a number of measures to help defend the economy against the looming recession. Here is a summary of major economic measures announced by the Canadian government to help Canadians affected by the pandemic as of today, with many more announcements expected to come over the next few days:
- The government will spend up to $82 billion, including $27 billion in direct support for Canadian workers and businesses.
- For Canadians without paid sick leave or access to employment insurance (EI) sickness benefits, the government is introducing a new Emergency Care Benefit that will provide up to $900 bi-weekly for up to 15 weeks.
- The Canada Revenue Agency will provide up to $5 billion for unemployed workers without access to EI through the new Emergency Support Benefit.
- To help prevent layoffs, the government is also eyeing a measure that would provide businesses struggling with a subsidy equal to 10 per cent of employee wages, up to $1,375 per employee and $25,000 per employer.
- Trudeau states that Ottawa will also temporarily boost the Canada Child Benefit (CCB) over the coming months. The government is proposing to boost the maximum annual CCB payment amounts by $300 per child for the 2019-20 benefit year.
- Tax-filing deadlines will be moved from April 30 to June 1 for individuals and August 31 for businesses. No interest or penalties will accumulate.
- A six-month, interest-free moratorium on the repayment of federal student loans is being proposed.
- Soon to be announced - a new Business Credit Availability Program is meant to provide more than $10 billion in additional support to businesses through the Business Development Bank of Canada and Export Development Canada.
COVID-19's Impact on Toronto Area Real Estate
With the pandemic causing global stock market meltdowns and major employment changes to millions, it's unrealistic to think that COVID-19 will not have an impact on the real estate market. Currently, we cannot be sure of the severity of impact on the Toronto area real estate market, and it does not mean that effects will only be negative. Since the state of Emergency in Ontario was only announced March 17, 2020, the direct effects on the current resale market might not be prominent just yet - here is what we have seen over the past two weeks on the Multiple Listing System (MLS), comparing the week of March 2nd-8th to the week of March 9th-15th, 2020:
- The number of new listings on the MLS increased from 1,114 to 2,265 in the Greater Toronto Area. Although this 103% seems drastic, it can partially be attributed to the beginning of the Spring Market - which has been recognized as the best time to list a home for sale.
- The number of sales on the MLS decreased from 2,221 to 2,154, although the variance between the two weeks is minimal, historically the number of sales usually increases week-over-week in the weeks preceding the spring market.
- The number of offer nights seem to have gone down. Although there isn't a sound way of confirming this, the number of recently listed properties in the downtown area on the MLS system with offer nights are not as common as previous weeks.
- Since the majority of businesses and city-operated offices have closed down, we can expect minor to major delays for any pre-construction real estate projects in the region.
Below are some major announcements and measures taken by the Central Bank of Canada, the government, and related industries that will directly or indirectly affect the housing market:
- The Bank of Canada reduced their key interest rate by 50bps (0.5%) on March 4th and a further 50bps (0.5%) reduction was announced on March 13th dropping the rate to ¾ percent as a proactive measure to counter negative shocks to Canada’s economy. The banks passed on the full reduction which reduced the Prime rate from 3.95% to 2.95%. This will mean immediate relief for Line of Credit and Variable Rate Mortgage holders.
- Mortgage insurers including CMHC and Genworth are working on a number of tools meant to relieve some of the stress for clients in financial hardship. This applies to clients who purchased their home and paid mortgage default insurance. Some of the options that may be available include: deferral of mortgage payments, re-amortization of the loan/mortgage, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements.
- The government also rolled out a number of initiatives to help the banks continue lending during this unprecedented period of uncertainty.
- The Office of the Superintendent of Financial Institutions (OSFI) suspended the changes that were to come next month to Mortgage Stress Test (Question #10) to make it more "responsive".
- Canada’s six biggest banks are offering to ease up on customers whose lives have been disrupted by the pandemic by allowing borrowers to delay mortgage payments for up to six months.
- We are finding that most lawyers and lenders are making accommodation for remote signing. Clients are able to sign documents electronically while reviewing information on a video conference with the lawyer. Please speak to your lawyer specifically on what is possible in your case.
The Good News
If the global economy enters a recession then it might be long until we see the light at the end of the tunnel but the good news is that every bear market or recession is followed by a bull market and eventually economic growth. In the short term, here are some positive highlights to keep in mind:
Lower Mortgage Rates
For the first time in years, the prime rate has dropped below 3%. 5-year fixed mortgages rates are around 2.8% and 5-year variable rates are approximately 2.5%. Home buyers can possibly secure larger mortgage amounts and at lower costs during these times.
Real Estate is Safer
During times of unease in a volatile stock market, many investors choose to move their investments into real estate since historically they have been less volatile and provide a safe haven. Also, fixed rental income is usually more reliable when dividend payouts from stocks take a hit.
CAD <> USD
For foreign investors, now might be a good time to invest in Ontario real estate since the Canadian dollar is at a low point with the conversion rate reaching a high of $1.46 CAD per $1.00 USD this week. Higher exchange rates paired with low mortgage rates might just make it the perfect time for foreign investors.
As the COVID-19 pandemic response continues to evolve, so will more clear indicators of the short and long term effects of these events on the greater Toronto real estate market. We will try our best to keep you informed.
Dwelly lets you purchase a home right from the comfort of your couch - wherever you are. Request video showings, ask questions, submit and sign offers - all online. If you're interested in learning more or would like to invest in the Greater Toronto Area real estate market - message us via our online chat or email us anytime at [email protected].