Special Market Report – March 12, 2020
In just a few short weeks, the coronavirus outbreak along with an abundance of misinformation has created a general feeling of public hysteria leaving some home buyers or home sellers with questions.
Should they take advantage of current conditions or wait it out to see what happens next?
There is no question, everyone is concerned seeing the global stock markets plummet. The reason is simple, investors seek a safer asset amid additional fears that the coronavirus will disrupt global supply chains, tip the viability and economic performance of their stocks due to volatility of the number one client in the global market – China. Also, add the substantial drop in oil prices on the world markets and we certainly have an unstable mixture in front of us.
The COVID-19 crisis is profoundly different than the 2008 financial crisis which was fundamentally triggered by the financial system, mortgage market and “Lack of Access to Capital”. Here we have disruption in “Supply Chains” mainly coming out of China.
The global financial volatility associated with COVID-19 has shocked interest rates. Lower interest rates are arguably the most important indicator of higher real estate values; however, the interest rates aren’t alone in their decline. Over the last two weeks, there has been a similar disruption to the price of lumber, once again interruption in the supply and demand chain by China which is widely used in housing production as well as the price of oil, which is a key component in cost input for transportation of goods and ultimately real estate construction. The decline in interest rates, paired with the reduced cost of commodities and access to capital raises an important question.
Could this cause an unexpected boost for the real estate market?
We are confident that eventually everything will return to normal as we experienced in 2004 (SARS) and 2008 (financial crisis). Travel restrictions will ease – Italy will not be locked down forever. A vaccine or cure will be discovered by our great scientists and confidence will return to our world stock markets. We have already seen a bounce in the stock markets, but volatility will continue for the next few weeks. There will be hard times for some countries – Italy for one – BUT the lasting effect on Canada will be minor.
We also need to understand that the source of infection has been identified as a novel coronavirus, related to the same that caused outbreaks of Severe Acute Respiratory Syndrome (SARS) from 2002-2004 and Middle East Respiratory Syndrome (MERS) in 2012, there are vaccine and antibiotics for both outbreaks. There are similarities in sequence and structure between the spikes of the two viruses. The researchers are currently working on a vaccine to isolate antibodies from people who have recovered from infection, such antibodies potentially can be used to treat new infections before a vaccine is available. The Canadian health system overall has done a great job in managing this health crisis.
Ontario real estate market heated up with a vengeance over the first two months of 2020. It’s no secret that market conditions in Ontario’s largest cities have been largely defined by a growing supply and demand gap while factors such as foreign and domestic investment have also contributed to the too hot to handle price growth.
As far as investors, they are looking for the calm in this storm. Canadian residential real estate appears to be an attractive option specifically for single-family homes. Perhaps it’s safe to assume that a steady and healthy market with easier access to capital is on the horizon.
This global crisis will have an unintended constructive impact for what was already a robust real estate market, due to aggressive and coordinated fiscal and economic incentives such as a drop in interest rates. This health crisis will be handled and the long-term impact on our local real estate markets will be inconsequential.
Real estate is always a safe haven when matters of concern are at hand. Phones are ringing, driven by historical low interest rates and a confident “all will be well” within our Canadian health and financial markets. In the upcoming weeks and months, look for a small increase with foreign investors and end users. Long term, real estate in Canada and specifically Ontario is a smart investment – nothing has happened to hamper that enthusiasm.