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How the Third Wave Could Affect Canada’s Real Estate Markets

April 9, 2021

Remember the good old days – ahem, a few weeks ago – when vaccine rollouts seemed to be picking up steam and “the third wave” hadn’t yet entered the common vernacular?  In the heyday of that optimism, the Canadian Real Estate Association (CREA) theorized that if COVID-19 restrictions lessened and the weather improved, we might see surges of new listings1 bringing relief to markets nearly choked by high demand, low supply, and rising home prices.

Well, so much for lessening restrictions. Since the beginning of April, Ontario has declared a third state of emergency with stay-at-home orders, Alberta has reintroduced heightened restrictions, and Manitoba is bracing for the third wave.

What does this mean for Canadian real estate? As the Bank of Canada put it back in January regarding the national economy, “uncertainty is still elevated, and the outlook remains highly conditional on the path of the virus and the timeline for the effective rollout of vaccines”2 – which is a brilliant way of saying, “we don’t know for sure what’s going to happen – it depends on the virus.”  

However, we’re willing to explore what could happen. Given what we know about typical real estate trends and what happened in the markets last year, we’ve come up with two scenarios for what the spring and summer real estate markets in Canada might look like.

Woman looking out of a window during COVID

Scenario 1: History repeats itself

Last March, the spring markets were stopped in their tracks when states of emergency were declared in Ontario, Alberta and Manitoba. At the time, people were understandably scared: there was a lot we didn’t know about the virus and reports seemed to change every day. Despite real estate being deemed an essential service, home sales dropped sharply through April as we Canadians shut our doors and held our breath (and sanitized everything).

We’re now facing a similar situation: the new variants are said to be more deadly and more transmissible, which is throwing younger demographics – previously thought to be less vulnerable – back into a state of fear and insecurity. With restrictions being reimposed by our provincial governments, buyers and sellers may become reluctant once again to enter the market. If this happens, we could see demand cooling off and price growth slowing down.

From there, the scenario would likely play out much like the first wave, provided no new catastrophic events occurred and interest rates stayed low (which the Bank of Canada predicts, with deft caution, they will until 20233). After a lull, we’d see sales rebound as restrictions were lifted; however, buyers might jump into action more quickly this time around, knowing how competitive the markets might become. And if cautious homeowners became as reluctant to list their properties as they were following the first wave, we’d see inventory bottom out, sending prices skyward. So the story went, and so it could go.  

Man and young child play hula-hoop on the sidewalk in a residential neighbourhood.

Scenario 2: We keep on keepin’ on

It’s possible that not even COVID can stop these markets. Selling conditions are good – if not great – throughout most of the country, and people with a property to sell aren’t likely to want to stop that gravy train. After all, national home prices rose 25% between February 2020 and February of this year,4 while residential real estate contributed over 9% to Canada’s gross domestic product (GDP) in 2020, which is considered extremely high.5 Add in replenished supplies of Lysol wipes and a dash of COVID fatigue, and we may be looking at spring and summer real estate markets undaunted by the third wave.

What would that mean for the months ahead? It could be a return to more typical buying and selling patterns, with activity ramping up while the weather is fine and curb appeal is at its peak, followed by a slight tapering off in early summer while Canadians are busy enjoying backyards and cottages, finishing with a rush before autumn as families try to get settled in new homes before school starts. In fact, just this winter national home sales dipped, as they typically do, over the holiday season – low interest rates notwithstanding.

Of course, all of this could happen at a much higher volume than we typically see. Shaun Cathcart, Senior Economist of CREA, noted in February that demand is “being pulled forward from the future” as buyers either search for better accommodations to ride out the pandemic or try to secure a property before prices go higher. All the while, “existing owners with major equity [are] being prompted by the great shakeup that is COVID-19 to pull up stakes and move.”6 As such, if we get the typical burst of new listings on the spring market, they’d be no match for the level of demand and prices would continue their ascent. In short: more of the same may await us.

Many Canadians – especially first-time homebuyers – are asking what it will take for the markets to cool off. The simple answer is less demand, which we might see proof of if pandemic restrictions start influencing real estate behaviours all over again. The not-so-simple answer is tied up in interest rates and inflation, consumer confidence and economic recovery, which, to borrow from the Bank of Canada once more, “remain highly conditional on the path of the virus.” In the two scenarios we’ve explored, the summer months may not bring much relief to supply-starved markets, but only time will tell.

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