With World Health Organization (WHO) officially declaring the coronavirus a global pandemic on March 11th many governments, including our own, have decided to take necessary precautions to keep the public as safe as possible. While no one can answer with certainty how the coronavirus will affect the GTA housing market, I believe that we can look at some clues and make a fairly accurate prediction.

The Greater Toronto Area real estate market is tied in large part to the economy, unemployment rates, interest rates & the need for housing. Let’s look at each of these factors in detail:

The economy

The economy will undoubtedly take a hit from the fallout of the coronavirus pandemic. How big of a hit the economy will take is the question? Scotiabank economists have predicted that Canada could be heading for a mild recession by the fourth quarter of 2020 without a fiscal stimulus. Typically, in times when there is a recession housing prices tend to go down.

Unemployment rates

Low unemployment rates in Ontario (5.6% in 2019, the lowest since 2000) have been one of the drivers for the real estate market over the last several decades. If a recession does occur, the unemployment rate will climb reducing the demand as the number of people able to afford buying into the market would diminish.

Interest rates

On March 4th, the Bank of Canada cut the interest rate by 50 points. On March 13th, it made another rate cut of 50 points reducing the rate to 0.75%. These moves taken to support the economy by easing the interest rates will help stimulate the real estate market. Lower interest rates mean lower mortgage payments and higher affordability.

The need for housing is still there

People still need a roof over their heads and Toronto is one of the most desirable places in the world to be. That’s not going to change with the coronavirus pandemic.

Stress test

The new stress test being rolled out in April of 2020 will also be a buoy for the GTA housing market as it relaxes the previous stress test that was put in place to slow down the market. The purpose of the stress test is to ensure that the mortgage borrowers would be able to afford their mortgage payments if the interest rates were to go up by a certain percentage… The new stress test reduces that additional percentage by about 30 basis points, thus increasing the number of people who would qualify for a mortgage.

Likely outcomes

While the slowdown in the economy and the possible increase in unemployment rates point to a possibility of a slower real estate market in the coming months; the lower interest rates, relaxed stress test and a strong need for housing would likely counteract that. As COVID-19 is starting to affect every element of our daily lives, we will most likely see a decline in buying activity through at least parts of the spring market, and maybe even going into the summer market.

Looking back, harsh economic periods can cause real estate markets to stall, but in the Toronto area there is a silver lining to this:

• The current GTA real estate market is overheated sellers’ market, so
• it has room to not stall,
• but to adjust towards a balanced market.

As to how long that will take, we’ll just have to wait and see…

P.S.

You may also like this video interview with Phil Soper – Royal LePage CEO, on the Coronavirus outbreak affect on the Canadian Real Estate market.