The coronavirus pandemic is a tragic global health crisis that has changed life as we know it and had one of the most significant impacts ever on the global economy. As I write this article, it continues to spread and disrupt people’s lives. I want to be very sensitive to the human nature of this crisis. We all probably know someone who has been personally affected – I’m extremely sad to say that I lost my grandfather to COVID-19. He was a great man and I will miss him very much.
So it’s no surprise that when talking about investing during this crisis, people are quick to vilify investors and companies looking to profit from this crisis. And investing in real estate in this era is often associated with profiting from the suffering or financial difficulties of others.
But another view is that real estate buyers, especially now, are needed to prevent a market crash. In most cases, buyers are not predatory in nature and, although they are looking for a “bargain”, they are not looking to profit from the misery of others.
Sales volume versus sales price
Last October, I wrote an article called “Recession Talk Is Growing – Is It A Bad Time To Invest In Real Estate?” I couldn’t have predicted this pandemic at the time, but a housing market downturn is something a savvy investor should have been prepared for.
Over the past few months, we have seen a huge drop in sales volume in Canada and the United States. However, whether you’re considering buying a home, selling one, or investing, you probably don’t care so much about the number of homes sold in a given market, but rather about the impact of the pandemic on prices. real estate.
Real estate market resilience
One of the reasons I prefer investing in real estate over other assets is its resilience. Most of us have seen how volatile the stock market can be, losing much of its value in a matter of days. Property prices, however, have not budged much in most markets. For anyone who owns real estate, whether as a primary residence or as an investment, this is very good news.
My take: What impact will the pandemic have on real estate?
So how do I think the pandemic will impact the real estate market? To understand how the market will be impacted, we need to understand how the price of real estate is fundamentally determined by supply and demand. If there are a lot of houses on the market and few buyers, prices go down. If there are few houses with many buyers, prices go up.
You may be wondering about the impact of this health crisis on supply and demand. In my opinion, most buyers and sellers take a wait-and-see approach. The number of listings has dropped dramatically since the start of social distancing became the guideline across the world, as has the number of shoppers. As a result, most markets have yet to see a significant price impact. In the coming months, the impact this action will have on the market will largely depend on the duration of the social distancing measures and the extent of the impact on the economy.
When life returns to “normal” I expect there will be an increase in the number of homes on the market. People still need to sell their homes, so a high bid. The real question is whether buyers will be lining up to purchase these homes. I think in most cases the answer is: not as many as there would have been otherwise. Why? Because many households are feeling the pinch from an income perspective. People have lost their jobs unprecedented figuresthe contractors are struggling and the potential savings on the down payment have been used to pay for day-to-day expenses.
If this prediction materializes and we see a high level of inventory with low demand, buyers will have more bargaining power and prices should fall.
If you’re thinking of buying, keep an eye on the market and wait a little longer for cheaper deals. Now is the time to speak with your mortgage broker to find out how much you can afford, get pre-approved, and maintain a rate for you.
If you’re buying rental property, think about how the pandemic might affect your ability to find tenants and their ability to pay rent if their career or health is affected. Invest for cash flow, make sure you have enough reserve funds and look for great deals. Invest in a strong market where the economy (and jobs) should rebound and the population should continue to grow.
It’s impossible to predict how long the pandemic will impact the economy, but history shows that North American real estate markets will rebound. Personally, I sleep much better, with my investments concentrated in real estate rather than the much more volatile stock market.