Real estate listings are drying up, open houses have been canceled, and buyers are staying home. One more pillar of the Canadian economy is under threat from the coronavirus pandemic.
What was a roaring start to the spring house-hunting season has ended in a whimper. By the time the dust settles on what's likely to be months of disruption, Canada could see resales plunge 30% to a 20-year low and the first nationwide drop in prices since 2009, according to Royal Bank of Canada.
"This is freezing the market," John Pasalis, president of Toronto property brokerage Realosophy Realty, said in a phone interview. "The best-case scenario is we see an improvement in activity in the fall. I don't think anyone's really expecting anything before that."
Real estate, along with residential building construction, accounted for almost 15% of Canada’s output last year, ahead of energy at about 9%. It has been a key driver of growth in Toronto, Vancouver and Montreal, where an influx of immigrants has fed a boom in activity in everything from architecture and design to insurance and lending.
The buoyant market has also been central to the massive wealth effect that has been driving consumption in recent years. The value of real estate assets owned by households has risen by C$2.5 trillion ($1.8 trillion) over the past decade, an increase of 80%.
Now it's just another casualty of mandated shutdowns to fight the spread of a virus that has infected more than 9,000 in Canada and led to 105 deaths. While construction has still been allowed to operate in Ontario and British Columbia, it’s all but shut down in Quebec.
It's a big change from early March when markets were soaring. In Toronto, sales rose about 50% in the first two weeks from a year ago, and prices were surging, according to Pasalis. By last week, sales were down 37% and new listings were cut by a third in Toronto, he said.
In Vancouver, some sellers haven't caught up with reality, says Ian Watt, who specializes in condos at Sutton Group West Coast Realty. "We're still seeing a dozen listings a day in the downtown core, it’s ridiculous," he says. "Why would anyone do it? No buyers are out, period."
Robert Hogue, senior economist at Royal Bank, said the pandemic will be a "tough but temporary blow" to Canada's housing market. He sees a recovery coming in stages as buyers take as much as a year to regroup and rebuild confidence amid high unemployment. That means home resales will dive to 350,000 units, he said. Prices will fall briefly over the second half by an average of 2.9% from the year before.
How quickly employment picks up will be key. Already, 1.55 million Canadians have applied for unemployment insurance since mass lock-downs began earlier this month.
"The longer this goes, the more it's eating away at savings, down payments, employment status and income for the year," said Simeon Papailias, managing partner of REC Canada, a Toronto-based firm that operates under the banner of Royal LePage Signature Realty. "So it'll affect qualifications."
The uncertainty is sure to chill the mortgage market, according to Albert Collu, president at M3 Mortgage Group.
"People aren't comfortable about going into a home and taking a look at it before making a purchasing decision, nor are they well-grounded in the security around their employment situation at the moment," Collu said in a phone interview. "Purchase activity is going to be curtailed."
Still, industry observers expect the market to rebound strongly once the virus is beaten back.
"We see the outlook improving markedly next year," RBC's Hogue said, estimating home resales to surge more than 40% to 491,000 units in 2021. "Exceptionally low interest rates, strengthening job markets and bounce-back in in-migration will generate substantial tailwind."
Papailias at REC said the minute uncertainty is lifted and "you can go outside without getting your children or parents sick — I think the market is going to go bananas."
Elton Ash, head of western Canada for Remax Holdings Inc., also sees markets roaring back. The question is if there’s a broader recession — and that could depend on the U.S. and how it deals with the virus, given how closely the two neighboring economies are linked.
"There's the big unknown — the elephant south of the border," said Ash.
