Is Canadian Real Estate market going to Crash?

By: Laddi Dhillon

Is Canadian Real Estate market going to Crash?

Tags: The global pandemic may well be coming to an end very soon. These horrible couple of years were a true challenge for all industries, real estate included.

The global pandemic may well be coming to an end very soon. These horrible couple of years were a true challenge for all industries, real estate included

 

At the beginning of the pandemic, the industry was just frozen for a time, and the future seemed very dark and unpleasant to all real estate professionals.

 

During this madness, our main job was to keep ourselves as far as possible from each other. However, when you are working in an industry where everything is about talking, communicating, showing properties, and constantly being around people, you can’t be happier when all this finally ends.

 

Such a global event as this pandemic can’t come alone. This worldwide disaster came with its dearest friends: economic decline and an overall deterioration in the quality of life. As if we weren’t tortured enough by this sickness.

 

So, the burning question of the day is, if this avalanche that we are all experiencing right now will be capable of smashing the real estate market of Canada? Do we need to be afraid of (on top of everything else) a new catastrophic situation in the housing market that will bury all our hopes and dreams?

 

Well, let's get this sorted out, shall we?

Real estate bubbles and what they mean to us

This last year in the real estate market was… quite interesting if I am allowed to use that word.

 

We witnessed an incredible increase in property prices, both for condos and houses. Many people who know the insides of the real estate world and even ones that are new to this industry now say that it is possible the Canadian real estate market is now a bubble, and we should be waiting for it to burst. Any time now.

 

So, let’s get straight about what the heck is that real estate bubble? This term is used when house prices are more volatile and rise too quickly and. It can be caused by multiple factors and creates an unhealthy situation on the market.

 

Under normal conditions, the market shows stable growth in prices, and house owners can expect to get a good (or at least some) profit if they decide to resell their property.

 

And on the other hand, we have people who only try to buy their first property, and when the market is good and stable, these people can afford mortgages and all the additional payments that come with the new property. I mean closing costs, down payments, restoration, etc.

 

But, when we have the bubble growing, we see that almost every piece of property on the market is massively overpriced, often unreachable for new buyers. You may assume that this situation may be a good thing for the current owners, but let me be the person who clears things out for you: it is terrible for everyone.

And why, you may ask?  It is easy: the bubble will eventually burst. No exceptions. And it will provoke an incredible fall in the value of the property, and homeowners will have to deal with the consequences.

 

There are many reasons why the bubble market situation can happen. It can be more natural causes like economic factors and somewhat “unnatural” like when speculators enter the market.

 

When we speak about the speculators, it is not crazy to think that these people just want to buy a house or two and make some money from them like everybody else. But speculators are just on another level from those who simply take advantage of the situation. They buy the property to stimulate the increase of prices and create a fake demand.

 

When the prices reach the top, they sell everything single house they own, causing the rapid decrease of prices and eventual housing market crash. Since the demand was fake, there are not enough people who want to buy a property, bringing us full circle.

 

If this crash happens, it will hurt everyone, not just homeowners. We all take part in the economy, and real estate is such a big part of the Canadian market, so if it blows, we all go down the river. 

Where are we now: the 2021 real estate market situation

The Canadian economy takes its first steps to a full recovery from the horrors of 2020. The government made some crucial steps to ensure that the real estate market will survive the pandemics and come out of it with grace.

 

First of all, the government started providing mortgage deferrals, various programs and plans for first-time home buyers, and wage subsidies to help people continue participating in the property buying process.

 

Helping the real estate industry was extremely important because the Canadian property market occupies a shockingly huge piece of the economic cake. It is more significant than in other developed countries, and it is certainly a huge part of every Canadian’s life. After all, we all need to live somewhere.

 

All these preventive measures that helped to save the real estate market from collapsing resulted in low interest for mortgages and more affordable housing for larger groups of people. And it was expected that property prices would continue going down (as it happened at the beginning) during the pandemic because so many people lost their jobs and can’t afford the mortgage anymore.

 

But it didn’t happen. Actually, we now see significant growth in prices for condos and houses. For example, according to the Toronto Regional Real Estate Board, the month of March of 2021 showed record sales, and the prices in GTA for the detached, semi-detached, and townhouses went up by over 20% and more.

 

The fun fact is that when houses become too expensive for regular people, they turn their attention to more affordable apartments and condos.

 

They are usually cheaper, more convenient, and, as an added factor, maintaining a property in multiple apartment buildings is so much easier than in a detached house. But in 2021, apartments and condos can be as expensive as houses.

 

We clearly entered the seller’s market because demand for new housing is exceptionally high in 2021. But, we can see the light at the end of the tunnel, and it will decline eventually at the end of this year.

 

As for supply, we have a shortage now because it was a kinda surprising situation that even during the uncertain times of the pandemic, people still want to buy property. But, the market will recover from the higher prices for property, and it will not take long.

So, should we wait for a real estate market crash in 2021?

Now it is time to summarize all that I have told you before and pronounce the final verdict. I can definitely say that the Canadian housing market in 2021 will not experience a crash. No, not a chance.

 

We will definitely see a decrease in prices during the last part of 2021 (as we always see in the winter season), but it is rather doubtful that we will witness the massive collapse in the real estate industry this, or even next year.

 

The most important factor in this story is that the higher prices were not provoked by speculators who entered the market and caused harm. As funny as it sounds, all the measures that were called to prevent the industry from losing buyers caused people to overdo the job and start buying even if they were not planning to do it.

 

It is just a matter of good timing for the people who were not affected by the pandemic as hard as other Canadians. They now can afford a mortgage at these lower rates (maybe they could do it before, but now the time is better than ever) and use all the other advantages of this terrific situation.

 

COVID-19 pandemic did not make things in the world and Canada better, for sure, but the crisis we are experiencing now is much smaller than was expected. Yes, this disease has set back Canada’s economic development by a decade or more, but it is far from catastrophic. The world will recover, so will the Canadian real estate market.

Final thoughts

Do we need to expect another massive crisis in the real estate industry any time soon? Probably not.

 

In the situation we find ourselves in right now, people will continue buying, reselling, flipping, and building properties, and this fantastic part of our lives will not see the end soon.

 

Yes, we can observe a big increase in prices right now, but the process will slow down in 2022, and the market will come back to its familiar stable position.

 

So if you want to sell your lovely home in 2021, it is the best time to do it because demand is high, prices are reasonable, and you will get a significant profit from it. But if your goal is to buy a house this year, I advise you to wait until 2022 to save some money.

 

And with all that being said, I wish you good luck, and let’s conquer the pandemic together