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The coronavirus pandemic is a tragic global health crisis that has changed life as we know it, and has had one of the most significant impacts ever on the global economy. As I write this article, it continues to spread and upend people’s lives. I want to be very sensitive to the human nature of this crisis. We probably all know someone who has been personally affected — I’m extremely sad to say that I’ve lost my grandfather to COVID-19. He was a great man and I will miss him dearly.
So it’s no surprise that when talking about investing during this crisis, people are quick to vilify investors and companies that are seeking to profit from this crisis. And real estate investing in this time is often associated with profiting from the suffering or financial struggles of others.
But an alternative view is that real estate buyers, especially now, are necessary to prevent a market collapse. In most cases, buyers are not predatory in nature, and while they are looking for a “good deal,” they are not looking at taking advantage of the misery of others.
Sales Volume Versus Sales Price
Last October, I wrote an article titled, “Recession Talk Is Growing — Is It A Bad Time To Invest In Real Estate?” I couldn’t have predicted this pandemic back then, but a slowdown of the real estate market is something an informed investor should have been preparing for.
Over the last few months, we’ve seen a huge dip in sales volume across Canada and the United States. However, whether you are considering buying a home, selling one or investing, you probably don’t care as much about how many homes are sold in a given market, but rather about the impact the pandemic is having on real estate pricing.
Resilience Of The Real Estate Market
One of the reasons I prefer investing in real estate versus in other assets is its resilience. Most of us have seen how volatile the stock market can be, losing a big chunk of its value within a few days. Real estate prices, however, have not budged much in most markets. For anyone owning real estate, whether as a primary residence or as an investment, that’s very good news.
My Perspective: How The Pandemic Will Impact Real Estate
So how do I think the pandemic will impact the real estate market? To understand how the market will be impacted, we have to understand how the price of real estate is fundamentally driven by supply and demand. If there are many houses on the market and not many buyers, prices go down. If there are few houses with many buyers, prices go up.
You might wonder about the impact of this health crisis on supply and demand. In my observation, most buyers and sellers alike are taking a wait-and-see approach. Listed numbers have fallen dramatically since the start of social distancing became the guideline across the world, and so has the number of buyers. As a result, most markets haven’t yet seen a big impact on prices. In the coming months, the impact this action will have on the market will largely depend on how long social distancing measures last and to what extent the economy is impacted.
When life is back to “normal,” I expect there will be a surge in houses hitting the market. People still need to sell their homes, so, high supply. The real question is if buyers will be lining up to buy those houses. I think that in most cases the answer is: not as many as there would have been otherwise. Why? Because a lot of households feel the pinch from an income perspective. People have lost their jobs in unprecedented numbers, entrepreneurs are struggling and potential down payment savings 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 negotiating power and prices should decrease.
If you are thinking about buying, keep an eye on the market and wait a bit longer for cheaper deals. Now is the time to talk with your mortgage broker to find out how much you can afford, to get pre-approved and to hold a rate for you.
If you are buying rental properties, think about how the pandemic might impact your ability to find tenants and their ability to pay rent if they have their career or health impacted. Invest for cash flow, ensure you have plenty of reserve funds and look for exceptional deals. Invest in a strong market where the economy (and jobs) are expected to rebound and where the population is expected to keep growing.
It’s impossible to predict how long the pandemic will impact the economy, but history shows that North American housing markets will bounce back. I personally sleep much better with my investments being concentrated in real estate rather than in the much more volatile stock market.