What Impact Might COVID-19 Have on Home Values?
A big challenge facing the housing industry is determining what impact the current pandemic may have on home values. Some buyers are hoping for major price reductions because the health crisis is straining the economy.
The price of any item, however, is determined by supply and demand, which is how many items are available in relation to how many consumers want to buy that item.
In residential real estate, the measurement used to decipher that ratio is called months of inventory. A normal market would have 6-7 months of inventory. Anything over seven months would be considered a buyers’ market, with downward pressure on prices. Anything under six months would indicate a sellers’ market, which would put upward pressure on prices.
Going into March of this year, the supply stood at 5.87 months – a fairly balanced market overall. While buyer demand has decreased rather dramatically during the pandemic – about 55%, the number of new homes coming on the market has also decreased – about 10%.
For us in Alberta, we have already been operating in a recession environment for years – too much supply and not enough demand. So, our market prices have already adjusted downwards and for most homeowners there just isn’t enough equity to lower further, even if they wanted to. So it is not that prices are falling or rising, it is that we have nothing and we are frozen. So far.
The government aid packages, mortgage deferrals, and a low-interest-rate environment should help to mute the impact the economic shock has on house prices. And historically pandemics are usually v-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
What are the experts saying?
Here’s a look at what some experts recently reported on the matter:
RBC says to expect a “tough but temporary blow” to the housing market, but also notes that “oil-producing regions are the most at risk due to the plunge in oil prices.
- We expect property values to fall briefly: Surging unemployment and the market’s illiquidity will compel a growing number of tight-squeezed sellers to make price concessions.
- Oil-producing regions are the most at risk: The oil price plunge will compound the damage to housing demand at a time when Prairie markets still struggle with excess inventories.
- Policy response will soften the impact: Interest rate cuts, government financial support and banks’ offer to defer mortgage payments will help many households navigate through the storm.
- Pandemic has soured the outlook almost overnight: Social distancing and the economic shock will cut home sale activity to a trickle near term. The timing and speed of the eventual rebound is uncertain.
Even though the economy has been placed on pause, home prices have thus far remained fairly steady throughout the pandemic.
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