Should I Buy During COVID-19

Your Mortgage Guide

Should I Buy Real Estate During COVID-19?

It is not a good idea to buy real estate during COVID-19, unless you get a smoking hot deal. At a time when social distancing and self-quarantine are norms and economic uncertainty is widespread, selling homes is the last thing owners should have on their minds. With limited home listings and demands reverting to basic necessities, overstretching your budget to buy during COVID-19 may not be a wise decision.

The Canadian housing market was set for a flurry of activities this spring with an increase in real estate listings. A dip in mortgage rates in early 2020 enticed buyers to scout for their preferred homes on a budget. However, in the midst of their house hunting, the nation went for a lockdown to arrest the spread of coronavirus pandemic, dashing all hopes.

Realtors suspended open houses and all home-selling activities came to a grinding halt following lockdown and people practicing social distancing and self-quarantine. Higher prices, reduced listings, and end of the buying season mean buyers are left with almost minimal chance of price discounting even from “highly motivated” sellers limiting their ability to buy during COVID-19.

However, this does not mean all your options are closed. There will be opportunities but it is up to you to stay prepared and wait for the right moment to exploit. When and how Will you get a good deal to buy during COVID-19? Let’s find it out.

Will I Get A Deal To Buy Real Estate During COVID-19?

Yes, there will certainly be deals during times of crisis, and these could be great opportunities for a prepared buyer. Life continues to go on and sometimes sitting still and riding this out is just not an option for all sellers. I suggest prospective buyers prepare themselves for the right time. But, how?

A prepared buyer is the one who has his finances ready for the opportune moment and knows exactly what and where he is looking to buy. Start with creating a list of your perfect house location and choice type. Pick an area of town that you most want to buy in. If you are well prepared, you have the choice to be picky. Sellers are amenable to such buyers knowing that the buyer is well positioned and empowered to buy during COVID-19 lockdown.

People are in fear, and concerned about safety following the coronavirus pandemic. Some will make emotional decisions to get their cash in hand fearing market uncertainty and hide that money for the rebound. If you have the power and potential to get the house you want, you are in control notwithstanding the effects of lockdown. So, create the list, and become a tough negotiator if you really want to buy during COVID-19. 

Do Fewer Listings Reduce Chances To Buy Real Estate During COVID-19?

The spring is the house-hunting season in Canada. But for all practical purposes, it stands canceled this year and sellers have plenty of reasons to wait for the market recovery. Inventories are at an all-time low, as they are reluctant to sell when all activities are stalled and buyers are not too many. Also, home is the safest place to avoid coronavirus and no one is ready to part with it without a convincing offer.

Listings were fewer even before the COVID-19 crisis. According to a February survey, only 14% of urban adult homeowners in Vancouver were ready to sell their houses. In April, the inventory saw a massive drop of 59.7% to 2,313 compared to 5,742 homes a year ago. Reduced listings pushed the average home price by 2.5% over April 2019 figures and 0.2% compared to March prices overstretching your budget at this time of economic uncertainty.

After the federal government made changes to mortgage rules effective from April 6 and stepped up efforts to provide mortgage loan relief, there is a hope of the market rebounding once the lockdown is reversed.

The Bank of Canada also pushed for a mortgage market revival with three rate cuts in a month. While payment deferrals and relief measures prevent any chance of foreclosures or sales by those in distress, sellers hoping for the market to rebound on rate cuts after a few months dither on selling houses at this time of downturn. This effectively limits your plan to buy real estate during COVID-19.

However, I expect the market to remain balanced. There will be fewer sellers as well as fewer buyers without any significant price drop.

If a buyer was in the market before COVID-19 disruption, he would likely be in the market during COVID-19 lockdown.

Such a buyer is ready to pull the trigger if there is a deal or a property that he is absolutely in love with. This realization by the seller negates any chance of sudden price drops, but the promise of a balanced market is sure to attract sellers to return and relist.

The Uncertainty Makes It Tough To Buy Real Estate During COVID-19

In Vancouver, there was a 56% drop in deals in March 2020 compared to sales a year ago. This clearly indicates the mood of buyers and how many of them are eager to buy during COVID-19.

The foremost thing that keeps buyers out of the market is the uncertainty on the financial front. Businesses are reducing salaries or laying off staff to stay viable. The national economy is on the back foot and there is the fear of job loss in the near term. Because of the downturn, people are falling back to their savings and focusing on buying only basic necessities. As of today, over 6 million people have applied for CERB and that doesn’t include the people who are on employment insurance. All these inhibit their ability to secure housing mortgage finance, a key requirement to buy during COVID-19.

Also, committing to a big investment at this juncture of insecurity is not a wise decision.

Since there are not many buyers, the non-existence of competition is a great chance for those who can afford to buy during COVID-19. However, they have limited options and may not get the home they aspire for. Most sellers look content to sit tight until there is some type of certainty as to what is going to happen with the pandemic and potential date of normalcy. Most people are concerned about safety and security and, as a result, they are going to hunker down and ride this out.

Is Low Mortgage Rate an Incentive To Buy Real Estate During COVID-19?

After three cuts in a month, the Bank of Canada refused to reduce rates further despite expecting a 15 to 30% reduction in the economic outlook in the second quarter of 2020. This effectively puts an end to any speculation over a rate lower than the current benchmark interest rate of 0.25% notwithstanding the damage caused by COVID-19 disruption.

I have been on many webinars with the heads of the banks, and they did their best to give us some insights as to expectations with financing and mortgage rates. Based on what I learned from them and the present economic conditions, I believe interest rates to continue as they are right now.

There is little chance of interest rates rising much more than what they are today. Any drop is already ruled out by the central bank. So, whether you want to buy during COVID-19 or after, you will have the same mortgage rates.

No doubt, rates are fluid and tend to fluctuate. However, it is an extraordinary crisis and any liquidity crunch may result in a catastrophe. Lenders need adequate capital in reserve to bail out consumers and businesses. The government has also come out with stimulus packages and securitization programs allowing more money in the system. All these point to zero chance of a rise in interest rates in the coming months denying any benefit on that from if you choose to buy during COVID-19.

The Mortgage Issue: Tough Approvals

Of course, with many Canadians now out of work, getting approved for a mortgage is going to be much harder. If you still have a job and money in the bank for a down payment, you can buy during COVID-19. If you have been laid off, there are still options for you. However, it is difficult to explain all those options without knowing details about your situation. So if you have been laid off, schedule a call or shoot me an email. I will speak with lenders on your behalf and get you some more information on that. I have planned more research on the subject in the next few days and come out with a post on this topic.

Buying A Rental Property or Investing in Real Estate? What’s More Prudent.

A rental property or real estate investment is a good option when you have excess financial resources. In fact, it is said that property investment in Canada is safer than gold. However, whether to buy during COVID-19 is subject to a second thought. Regular rent income is the prime motive behind buying a property or even investing in real estate. But with laying offs and economic recession, the ability of a tenant to pay regular rent is something to be considered when picking your tenants.

If anyone is buying, he must be prepared and financially secure. If not, it is better to bunker down and ride this out. Real estate is not the play right now and you should not move to buy during COVID-19 unless you have the resources and knowledge base to get a great deal. It will be again, but not right now. The real opportunity, at present, lies in the stock market. If you have access to a home equity line of credit or have equity in your home, I would suggest lining up this HELOC with the anticipation of making some investments in the future and hold it for five years.

If you want some information on the advantages of getting a home equity line of credit, click here to let me know and I will create an article for you to review.