The Pandemic's Impact on Housing

Buying a home is an incredible financial milestone irrespective of the kind of home you purchase. Whether it’s a condo, townhome, a detached home, or even signing the lease on a new apartment, we all need a place to hang our hat at the end of the day.

For first-time homebuyers, this is an even more notable feat. In light of the global pandemic and the economic constraints, purchasing a home has been stressful for many. Many people are seeking ways to make passive income. Even senior citizens require financial advice to make valuable money decisions during this period.

From closed restaurants to empty shopping centres to offices, lay-offs and furloughs were commonplace in the early stages of the pandemic. While businesses are slowly recovering and bringing employees back into the workforce, the pandemic has caused significant financial strain on many households – especially those who were planning to purchase their first home. Additionally, in lots of areas in Canada, there has been an increase in the number of people seeking loans. For instance, payday loans in Saskatchewan requests have skyrocketed.

If you’ve been saving up to buy a home this year, there’s a good chance that you’ve had to put your home-buying dreams on hold. There’s a ton of sticker shock in the housing market – not just in the listing price for homes, but also in bidding wars, too. Thinking of buying a home in 2022? Don’t start looking at home listings without reading this article first! In the sections below, we’ll outline how the pandemic has impacted the housing market and what you can expect.

What’s happening in the Canadian real estate market during the pandemic?

It’s an understatement to say that the real estate market is booming throughout the U.S. and Canada. From blind bidding to skyrocketing prices, there’s no denying that the housing market is having a red hot summer. Even the pension loans department seem to be quite busy. As these folks now want the money to buy homes.

In June, the typical real estate listing stayed on the market for a maximum of 37 days. Even with quicker turnarounds, larger cities, like Vancouver and Toronto, are seeing prices skyrocket across the board. For example, this rundown garage in Toronto sold for $729,000 – in just three days!

According to the Canada Mortgage and Housing Corporation (CMHC), there are a few key factors that have contributed to the housing market swings in Canada: high demand, lower spending, and heightened income inequality during the pandemic. See more below:

High demand (and low supply)

Widespread lockdowns across the country have forced people to spend much more time at home than usual (and even to work at home). For many, that means re-evaluating their housing situation.

Maybe the savings and freedom of apartment dwelling became cramped and frustrating while working and living in a small space during lockdown. Or, perhaps living in busy metropolitan areas no longer carries the allure and amenities, making residential living (and additional space) much more desirable.

Whatever the reason is, lockdown restrictions during the pandemic created a surge of pent-up demand. More people than ever were ready to buy a home, but there simply weren’t enough homes on the market. And that created a growing bubble of more folks who want to buy pushing against fewer folks who want to sell.

Once lockdown restrictions were removed and more sellers felt comfortable entering the market, sellers were primed and ready. In June 2020, home sales skyrocketed to 63 percent more than in May. As the CMHC puts it, “As restrictions were lifted, this delayed demand accounted for a large share of the increase in third-quarter sales.”

Lower spending (and higher saving)

There’s no doubt that the pandemic caused everyone to rethink their finances. Those who were let go from their job or furloughed during lockdown had to adapt to a loss of income and supplementary assistance from the Canadian government through either unemployment benefits or Canada Emergency Recovery Benefits (CERB). Some serious budget adjustments were definitely made.

Even if you were lucky enough to keep your job, the uncertainty around “what happens next” coupled with fewer opportunities to spend means you likely started saving much more. In fact, the CMHC reports that the average household savings rate rose to historic levels during the second and third quarters of 2020.

So how does an increase in average saving rates impact the housing market? Well, there are two sides to this coin: first, as households increase their savings, it becomes much easier to afford the down payment on a house. An extra boost in savings often encourages more people to buy a home, increasing demand in the process.

On the other hand, lower mortgage rates and deferred mortgage payments can make it easier for households to delay selling their home and keep it off the market. This creates a push-and-pull effect, where the number of potential buyers is increasing while the number of potential sellers is decreasing.

Income inequality

Combined with high demand and decreased spending is the reality that higher-income households were less affected by the economic impacts of the pandemic. Higher-wage earners tend to have jobs that can be conducted remotely, whereas lower-wage earners often do not.

Of course, higher earners had the same restrictions on travel and shopping than lower earners, but they also had the same opportunity to save – and buying a home is a great way to invest savings. With average home prices easily coming in at $700,000 (and beyond), a bigger group of higher-income earners with disposable income can easily create bidding wars.

What’s next for the Canadian housing market?

All bubbles burst at some point – and it’s hard to predict when that might happen for the Canadian housing market. The effects of the pandemic are still lingering: employment rates are still below pre-Covid levels in many areas, and financial support for those out of a job is only a temporary fix. Even as vaccinations roll out, health experts continue to practice caution in reopening and returning back to “normal.”

There are just too many variables to truly predict when the housing market will settle down, the least of which are inflation, employment rates, and local health mandates. Experts are predicting that the real estate boom will continue throughout 2022 (and likely beyond).

If you were planning on buying a home this year, you may want to hold off for now. Instead, take a “wait and see” approach and continue building your savings. Otherwise, the high competition for houses may put you in a position where you’re spending much more than you planned on.