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Mortgage sandbox

General Sandra Jansen Binkley 8 Sep

HIGHLIGHTS

  • The Coronavirus is likely to have a high impact on the real estate market in 2020 and 2021.
  • Most central bankers were concerned about inflated real estate prices and high household debt before the recession. These make Canadians more vulnerable to a crash.
  • With travel bans, foreign investment in real estate will dry up and AirBnB investments may encounter cashflow problems.
  • With most Canadian cities exhibiting indicators of high risk, Canadians should be buying homes as a shelter and lifestyle choice rather than considering real estate to be a low-risk and high-return investment.

Economists measure risk in terms of volatility and uncertainty. If prices in a market move dramatically (i.e., up or down) and unpredictably (e.g., not connected to local economics), then it is considered risky. This article will examine Canadian real estate price volatility and uncertainty, however before forging ahead we want to address the elephant in the room.

In July 2020, there were record sales in almost every Canadian city. Industry professionals explain the rise in sales by pointing to local quality of living and the resilience of local industry. We believe that the rise in activity is bot driven by local factors. The most likely explanation is that people are buying homes because:

  1. Some Canadians made the decision to buy before the COVID-19 pandemic, did not want to buy a home based on a virtual tour, and are taking advantage of fewer restrictions to complete their purchase.

  2. Many Canadian’s assume there will be another lockdown and their current home is too small for them to comfortably self-isolate with their kids while working from home.

This record breaking rise in purchase activity has led to a spike in prices, seems unlikely to continue in the midst of a recession, and makes for a poignant introduction to our analysis of volatility and uncertainty.

July 2020, there were record sales in almost every Canadian city. Industry professionals explain the rise in sales by pointing to local quality of living and the resilience of local industry. We believe that the rise in activity is bot driven by local factors. The most likely explanation is that people are buying homes because:

  1. Some Canadians made the decision to buy before the COVID-19 pandemic, did not want to buy a home based on a virtual tour, and are taking advantage of fewer restrictions to complete their purchase.

  2. Many Canadian’s assume there will be another lockdown and their current home is too small for them to comfortably self-isolate with their kids while working from home.

This record breaking rise in purchase activity has led to a spike in prices, seems unlikely to continue in the midst of a recession, and makes for a poignant introduction to our analysis of volatility and uncertainty.

article by Mortgage Sandbox