You may recall from my blog post in May. In it, I discussed how Ottawa’s housing market was entering uncharted territory in the face of COVID-19. Despite these unprecedented circumstances, this summer highlighted the resilience of the city’s housing economy, posting average sale-price increases month over month relative to this time last year. And here we are, nearing the end of October, and the market remains strong.
Some of you have reached out to ask me why — as many sectors of the economy falter — prices remain high and continue to rise. Many reasons exist, but here are three of the main considerations:
1. COVID-19 has contributed to maintaining historically low interest rates
This unprecedented health crisis has had far-reaching impacts on our economy. In the real estate sector, we see this most vividly in the preservation of rock-bottom interest rates. These low borrowing costs translate to greater buying power for consumers.
However, this comes with a caveat. When comparing our current economic environment to the last major global downturn in 2008, interest rates are actually functionally higher for some prospective buyers. How is this possible? It all comes down to stress tests. Despite the fact that rates are low, mortgage stress tests mean that prospective buyers need to qualify at a higher rate (at least 4.7%) to get these bargain interest rates (as low as 1.6%).
Nonetheless, for those that qualify, mortgages are more affordable than ever. Affordable mortgages are significantly increasing spending power, and consequently driving up prices, as bidding wars remain common across most market segments.
2. Supply continues to fall short of demand
I have good news for buyers: As shown in the graph below, listings have increased significantly since my blog in May. The increase in supply can be best viewed as a delayed roll-out of properties that would otherwise have hit the spring market at the beginning of the pandemic.
The bad news, and part of the reason for continued price increases, is that the uptick in listings doesn’t appear to be meeting the pent-up demand – look no further than the continued prevalence of bidding wars, albeit to a lesser extent as we roll in to fall.
So, who is buying all these houses in the midst of a recession? One would assume that, given less-than-ideal overall market conditions, we would see demand for homes fall off as the pandemic rolls on. But COVID-19 has not affected all people equally: Unfortunately, 80% of those who have lost their jobs during COVID-19 were employed in lower-paying sectors hardest hit by the pandemic – areas like retail and tourism. Here, workers were already largely priced out of real estate. Therefore, large-scale layoffs in Canadian communities have had little impact on the housing market as a whole.
In contrast, Ottawa is home to the federal public service and a diversified tech sector. Workers in either of these fields (and adjacent professions) have relatively secure jobs that have been largely spared, or, in some cases, have in fact become more secure during the pandemic. As a result, the pool of potential buyers in Ottawa has not been significantly altered despite broader Canada-wide economic turbulence.
What does appear to be changing is the distribution of demand, which brings me to my next point…
3. The #WorkFromHomeLife has led people to re-evaluate how much space is “enough”
If you’re like most people, you’ve had a lot of time to evaluate your domestic space over these past few months. Those hours spent attempting to work at the kitchen table across from your spouse or attempting to take a conference call while your kids are making racket, give little time for reflection, and yet plenty of time to imagine oneself with a bit more space.
As a result, homeowners upgrading their living spaces have generated particular demand in the detached and semi-detached markets. This trend has also led to a slight softening of the condo and rental markets. In turn, sales activity in the upper segments of the marketplace is driving the average market price of residential property up. This result is partly due to an increase in competition for larger, more expensive homes, and partly due to the increased frequency of high-value sales.
Regardless of where you are in your real estate journey, these are unusual times, to be sure. Despite economic uncertainly, the real estate market is booming thanks to low interest rates, insufficient supply, and a shift in thinking due to remote work realities.
For these reasons, it’s more important than ever to work with a Realtor if you’re looking to buy, sell, or rent. At Blue Panda Realty, we’ve adapted quickly to the times. For my clients, I offer a range of COVID-era strategies to help make sure their buying, selling, and renting transactions are as smooth as possible.
Whether you’re looking to upgrade to your forever home or just get your footing on the property ladder; whether you need to sell ASAP or want to chat about timing for your listing; or if you’re just looking for a well-priced rental in a vibrant neighbourhood — give me a shout so we can look at your options.
As always, stay in touch, and stay safe.
*All statistics provided by the Ottawa Real Estate Board.