CMHC’S PREDICTIONS
THIS WEEK IN THE GUELPH REAL ESTATE MARKET:
The Guelph real estate market continued to gain strength and improve over this past week, with 31 homes selling in Guelph and the surrounding townships. While this was only 72% of the number of sales reported last week, the improvement is in the number of sales over $600,000 – which represented 42% of the sales this past week. The upper end of the market has been very slow over the past quarter and while not unexpected, the return of sales in the higher end of the market signals renewing confidence in the move-up buyer segment.
The median home this week sold for $602,500 (or $420.35/sqft) took 19 days to sell, with sellers still commanding over 99% of their original list price. Compare this to the same week in 2019, with 54 homes reported sold, median sale price of $575,250 or $378.79/sqft, 18 days on market and 99.1% sales price to list price ratio.
Go back to 2018, and during the same week we reported sales of 46 homes. For a market still in the grips of a pandemic, 31 sales would seem like a strong response to such an unprecedented event.
Earlier this week, The Globe and Mail reported that the Canada Mortgage and Housing Corporation (CMHC) was predicting home prices could drop between 9-18% in next 12 months. Alarming to say the least. By far more pessimistic than any of the major banks and economists. Looking back at previous downturns during the early 80’s and mid 90’s, the average price decrease across the country was 5% according to the Canadian Real Estate Association.
Granted, a pandemic like this is unprecedented and will be difficult to compare to past major recessions. That said, the economic response by the government has also been unprecedented. Past recessions have not had governments pumping funds and stimulus into the economy to the extent that has been done in the past 3 months.
Digging further into the article, the assumptions around an 18% drop in prices almost sounds like the model used the worst case scenario in all factors. Given the current situation is still evolving and there is no solid path for the markets, the prediction sounds a little alarmist.
Respectfully, CMHC has in the past used an alarmist tone in much of its predictions.
Last year CMHC was sounding the alarm that the market was in bubble territory and on the verge of a major pullback, which didn’t occur.
Current market conditions locally don’t appear to support the CMHC predictions. However – as we’ve been reporting – a significant number of sales are still happening under competitive and multiple offer situations, despite market activity being down over 50%. The decrease in sales and new listings in tandem have helped keep prices stable.
Still, there is risk in the market and a tremendous amount of uncertainty. The latest information from the Canadian Bankers Association indicates that 15% of the mortgage portfolio has been provided with deferrals. Mortgage deferrals were set to run for a maximum of six months.
Our economy is starting to open up again. How we ‘behave’ with our new mobility will affect the market in a number of ways. A second and more severe wave of COVID-19, if it materializes, will push everything back months. The wage subsidy plans designed to preserve furloughed jobs need to be effective and prolonged enough to keep those jobs alive. We also need to feel confident that as a society and economy we are prepared to adjust to our new reality. There are a lot of moving parts and risks to consider.
Will the smart money be on participating in the real estate market now, or hold out – thinking that our economy will not recover relatively quickly, leading to the pull back in the market that some are calling for.
Over the past 8 weeks we have been running a weekly webinar series called Talking With The Experts. We’ve interviewed legal, mortgage and healthcare professionals as we try to make sense of and deal with the effects of the pandemic. We will continue to bring experts to the microphone and webinar space with the intention of keeping you informed and educated around the local real estate market as it evolves in response to COVID-19.
Our most recent interview was with Hart Togman, co-founder of RentPanda.ca. We talked to Hart about the effect that the pandemic has had on the rental market in Guelph, and in turn the impact on the investment market. Hart also shares some tips on finding a good tenant right now without sacrificing income in the long term, plus advice for short-term rental investors (i.e. what should you do with your AirBnB property?).
You can watch our conversation with Hart below, and view all of our webinars at the link.
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