What’s happening and when will the smoke clear?
As a Realtor® the most common question I get now is, “how will COVID-19 impact the real estate market?” It’s had a severe impact on the world in many ways including a slowed economy, increased unemployment, lower incomes, reduced GDP, and many other ways and naturally, everyone wonders how real estate markets will fair through it all. In this Red Deer Real Estate COVID-19 update, we’ll have a closer look at its impact on the Red Deer and Central Alberta market.
It’s not as bad as it seems
Every time some part of our economy changes negatively people think the real estate market will crash but real estate markets are a fairly stable part of our economy. Its activity (home sales) isn’t forced and its transactions take time. There are some circumstances where homeowners are forced to move quickly but it’s also a slow process. Because of the length of time real estate transactions generally take, decisions are more considerate, and this protects against volatility.
If an economy is hit hard homeowners still have the choice to wait for the smoke to clear and sell at a better time. The same is true for anyone planning to buy a home, and it strengthens the market. But if everyone felt the need to sell their home at the same time (high supply) and buyer activity didn’t increase accordingly (low demand) any market would be in trouble.
With the current COVID-19 issue, circumstances have caused our real estate market to slow with both buying and selling. However, when they balance each other like they seem to be doing, the market can coast through less harmed.
Home owners can wait to sell
If we were to see the number of homes for sale increase while purchasing slowed we’d definitely see a negative impact on prices. But in our current situation, for safety reasons, many homeowners will choose to wait to sell. Some help has arrived through government assistance. For some homeowners, a foreclosure might have been imminent without financial assistance but it’s given them the ability to wait out the storm rather than lose their home.
As for home buying, the COVID-19 issue has also impacted the market but not as severely as it could have. The buyer market has been affected by fewer people working but a large portion of the population was able to continue with their purchasing plan.
Some buyers are choosing to wait before purchasing hoping prices drop following COVID-19 but others are taking advantage of the current opportunity. Buying now offers a great opportunity and it’s less speculative than waiting. And with gov. assistance high right now there might be some interest rates surprises following COVID-19.
Buying and selling is rather balanced so far
So we’ve seen the market change during the COVID-19 issue but buying and selling have balanced the market rather well. They’ve both slowed but at a similar rate and strangely enough, we’re actually seeing a better balance in our local market than we typically do in the spring.
Over the last decade, our spring real estate market has led to very high m.o.i. (months of inventory). Buying activity is higher in the spring so homeowners rush to list during the same time, but due to purchasing slowing gradually over the past decade, we’re seeing high inventory litter the market throughout the rest of the year. Not this year… so far.
So far during COVID-19 property for sale (homes entering the market) is lower than homes leaving the market and that’s also contributing to more stability than expected.
Most people imagined our market would turn completely upside down during the COVID-19 crisis and they predicted prices would tumble. Prices have decreased a bit during the crisis but it’s been mostly due to uncertainty causing some sellers to accept offers lower than they would normally.
Right now our market is fairing well and I’m afraid the biggest market impact will hit following COVID-19. A lot of homeowners who’ve chosen to wait will be anxious to get their home on the market but the number of buyers needed to balance the market then won’t be there. If our economy remained the same through the crisis it would be less of a problem, however, because our economy will have taken a brutal beating during COVID-19, purchasing activity will remain low for a while.
If homeowners who would have normally listed their home for sale in the spring decide to list as soon as COVID-19 guidelines relax they’ll be directly contributing to their own lower sale price.
To guard against our market suffering post-COVID-19 I recommend only selling your home if you absolutely have to. The smoke won’t be clear when guidelines are lifted, it will only be clear when our economy is back to normal – and that will require everyone working again and time enough for people to get back on their feet.
We will post another red deer COVID-19 update at the end of May.