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Reopening Canada: The deep freeze is over, but real estate markets still a long way from normal

Canada’s most expensive cities may be on the brink of fully reopening, but when it comes to their residential real estate markets things are a long way from normal.

In Vancouver, the days of packed open houses for 100-year-old, three-bedroom detached houses priced at $1.2 million may be long gone, but so too is the pandemic-induced freeze on housing activity that gripped the market in April and May.

Now prospective buyers carefully enter thoroughly sanitized homes, donning masks and spending as little time as possible while touring.

“We screen people who enter and exit homes very diligently. Almost all the showings are done with buyers’ agents,” said Steven Saretsky, a Vancouver realtor and housing analyst. “It’s a little bit more work and effort, because there are more private showings as opposed to funnelling people through one house and collecting offers after.”

June is behaving more like the traditional spring market in April and May, usually the busiest months but pushed aside this year because of the shutdown. And Saretsky believes the trend will last into July and August. “If we see any market correction it likely won’t be until Q4 when mortgage deferrals begin to expire,” he said.

In Toronto, meanwhile, real estate companies are also taking extra precautions when showing homes, with many not allowing more than one group of buyers in at the same time, regardless of the home’s size, said John Pasalis, president of home search site Realosophy.com.

“There are no open houses right now,” he said. “I’m noticing agents being more cautious than clients with cleanliness and masks and things like that, but, overall, I would say the market in the first two weeks of June has been very busy. It’s unbelievable.”

Canadian Real Estate Association data show that national home sales in May 2020 rose a remarkable 57 per cent from a month earlier, while the number of newly listed properties was up 69 per cent.

But CREA said “housing activity” (which includes both sales and new listings) was still down 40 per cent year over year.

The market in the first two weeks of June has been very busy. It’s unbelievable

John Pasalis, Realosophy

Benjamin Tal, a long-time housing analyst and deputy chief economist at CIBC World Markets, cautions against over-measuring the movement in housing activity during this reopening phase.

“What you have to remember is sales are picking up from a very, very low level. We would have to go back years to see this kind of level,” he said. “When you take something that was at zero, of course it seems like it is bouncing back dramatically.”

Tal said the real estate market’s reopening is attracting white-collar workers and professionals who have yet to feel the impact of the pandemic on their employment, given that the shutdown has disproportionately affected temporary and low-wage workers.

“There’s pent-up demand from this group of people,” he said. “What’s also interesting is 25 per cent of homeowners are telling us that they are considering buying another unit as an investment as the market is soft and this is the opportunity they had been waiting for.”

“The vast majority of buyers don’t seem to care about a recession or what the fall season is going to look like,” one broker says.

Laura Pedersen/National Post files

One of the other trends Saretsky is noticing, which he believes is uniquely related to the pandemic, is the interest in detached homes in the suburbs over downtown Vancouver condos, as work-from-home practices extend over the summer months.

“People who were looking for a two-bedroom condo in downtown Vancouver priced at $900,000 are now saying, ‘Okay, if I can buy a house for $1.3 million with a rental basement suite, that offsets my carrying cost,’” he said. “We’ve been seeing really strong demand specifically for houses under $1.6 million with a basement suite, outside the city core.”

Although Saretsky said it is much too soon to draw any definitive conclusions on what pandemic trends might last, he highlights one other factor having an immediate impact on the housing market, even during the reopening phase: the freeze on immigration.

“One of the drivers of our rental market specifically is foreign visa holders and international students,” he said. “That has completely stopped, so you’re seeing some weakness in the rental market.”

We’ve been seeing really strong demand specifically for houses under $1.6 million with a basement suite, outside the core

Vancouver realtor Steven Saretsky

Indeed, Vancouver rents for one- and two-bedroom homes in May dropped five per cent and 6.3 per cent, respectively, according to rental website PadMapper. And 80 per cent of Canadian cities overall had flat or negative rent price changes in May.

Tal said the economic reopenings will only boost housing activity to a certain extent, given lower immigration levels.

“Half a million people enter this country a year. Most of them are non-permanent residents and students looking to rent.” he said. “But a lot of the rental units come from investors, so you’ll see vacancy rates rising.”

Tal also said the border closure with the United States will indirectly affect the real estate space.

“We have 100,000 Canadians moving to the U.S. every year. They are not moving now because of the border and remote work,” he said. “That means you’ll have all these people increasing demand for housing in the medium to long term.”

Some experts are predicting a second wave of COVID-19 in the fall, which might push economies back to square one, but that’s a scenario Pasalis said buyers don’t seem to be too concerned about right now.

“The vast majority of buyers don’t seem to care about a recession or what the fall season is going to look like,” he said. “To me the apprehension of buyers has gone completely and people are just trying to take advantage of these few months of relative normalcy.”

Financial Post

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