The Canadian housing market has been on the upswing since the fourth quarter of 2019 when the average home sold for about $604,000. Home sales skyrocketed in September, beating the prior home sale record by 20,000 homes.
The COVID pandemic lockdowns slowed down the sale of homes during the months of March and April, but home sales quickly increased each month since then. There could be several reasons, including the fact that after a solid several months of lockdown, people are simply ready for something new. With more and more people working from home, one’s personal space has become a critical consideration.
The US housing market is experiencing the same rise. Home sales have received a tremendous boost from the COVID epidemic. The average price of a house in the third quarter of 2020 was higher than the price during the same period in 2019. The question is, are the prices of real estate becoming overvalued?
Are we headed for another housing bubble?
Many homeowners and renters appear to be moving, lowering the number of available homes for sale, thus driving the price up. If these homes continue to be overvalued, we may see another 2008 housing bubble.
Home values are rising despite the worldwide recession caused by the COVID pandemic. Major urban areas, such as Toronto, Vancouver, Los Angeles, San Francisco, and New York, are seeing home values that appear to be overvalued. Government stimulus has attempted to keep home values on an even keel. These same cities have seen residential rents lowered. This would suggest that a correction will occur when the government support comes to an end.
The pandemic has forced many people out of large cities and into the suburbs, where they can enjoy more space and where housing costs tend to be less than in more urban areas. With the pandemic’s resolution still very uncertain, the health of the urban housing market is equally unclear. Nor is it known how long the uncertainty will drag on. Cities, already suffering because of the pandemic crisis, will likely need to increase taxes and cut spending. Neither option is promising for the housing market.
The Canadian housing market has been heading for a bubble since May of this year when the mandated lockups were eased. Home sales have risen since, and the Canadian Real Estate Association (CREA) has announced that home sales have increased by 45.6 percent from the same time last year.
The City of Toronto has been especially vulnerable. The UBS Global Real Estate Bubble Index 2020 considers Toronto the only city in the North Americas that already is in a housing bubble. With an epic economic downfall looming, other major cities could quickly join Toronto.
Buying a new home is made easier by the Bank of Canada’s low interest rates, which are expected to remain near or at zero percent for the foreseeable future.
The overall housing market will continue to be vulnerable for the foreseeable future as people experience record job losses and a lack of confidence in economic security.