Local Journalism Initiative
COVID and an energy slump caused a dip in real estate activity.
The market shows signs of rebounding, but realtors can’t yet predict long-term impacts.
In a province reeling from a dramatic drop in energy prices, the COVID-19 pandemic added another punch to the real estate industry, according to the Alberta Real Estate Association (AREA).
Ann-Marie Lurie, chief economist at AREA, said the first month of the health emergency crisis in Alberta saw an immediate negative impact on sales.
“The first month was fairly significant, about a 50 per cent drop compared to what we had last year,” Lurie said.
AREA’s market report in March stated that the month started out promising but following the spread of COVID-19, provincial real estate sales declined by nine per cent, while new listings declined by 15 per cent.
Sellers took their houses off the market in March and were not comfortable with people entering their homes, said Sharon Hawboldt, Alberta West REALTORS® Association media spokesperson and President/Chair.
With more people staying at home and offices closing, realtors in the area began hosting more virtual showings and tours, Hawboldt said.
“Consumer confidence was very low during that first period. As things started to open up though, from my perspective, that initial spring market that we were starting to see is coming now, fast and furious in a lot of cases,” said Hawboldt, who owns Century 21 Twin Realty in Edson.
Despite numbers not being where they used to be, the housing market certainly isn’t dead, she added, but it is difficult to predict how quickly the market will recover.
“Normally we have a good fall market, but that could be when we have a second wave,” she said.
She predicts that as long as people are working they will continue to go ahead with real estate decisions they had planned prior to the pandemic.
Brad Kopp, local realtor and owner of Royal Lepage Andre Kopp & Associates, stated that sales in March and April were essentially cut in half this year, while Hinton’s Coldwell Banker team said real estate activity in March came to a screeching halt.
“I think it’s pretty hard to look at those numbers and say that was not the result of COVID-19,” Kopp said.
In both 2018 and 2019 he had more than 40 sales in March and April, while in 2020 he had 17.
Kopp questioned if the activity that didn’t happen over March and April is yet to come later this summer as things recover.
Kopp added that Hinton has always benefitted from a relatively strong economy driven by some key industry players including the mill, mines, and oil and gas. When one wasn’t performing, Hinton could lean on another, he said.
Seanna Dallaire, office manager at Coldwell Banker, said consumer confidence is back and their realtors hope the returned rush will extend throughout the summer.
Buyers are still getting approved for mortgages and sellers are still confident their houses are going to sell without a significant drop in price, Dallaire said.
The Canada Mortgage and Housing Corporation (CMHC) forecasted that Canada will experience a historic recession in 2020 with significant declines in all housing indicators.
They stated that the decline in housing activity is compounded in oil producing provinces as the energy sector is also experiencing historic lows.
Sales and prices are expected to start recovering by mid-2021 as the pandemic recedes, but are still likely to remain below their pre-COVID-19 levels by the end of 2022, stated CMHC.
CMHC also believes that housing starts will likely see a decline of 51 per cent to 75 per cent in the second half of 2020 from pre-COVID-19 levels before starting to recover in the first half of 2021 as economic conditions improve.
CMHC forecasts a decline in sales ranging from 19 per cent to 29 per cent from pre-COVID-19 levels. The price of houses is also forecasted to decline by 9 per cent to 18 per cent compared to pre-COVID-19 levels.
Local realtors have not seen a price drop to near that extent.
“During the pandemic there was about a five to seven per cent decrease in prices,” said Roxanne Jahnke, realtor at Coldwell Banker.
Dallaire explained that five to seven per cent equates roughly to $5,000 and $15,000, depending on the home price.
With a busy start to June, Kopp said out of the properties sold when he spoke to The Voice, on average are selling at 95.22 per cent of the list price.
“I don’t think a two-month softening in the market, call that buyer activity going from what it should have been to what it actually was, is enough to really have a downward pressure on prices,” Kopp said.
He believes it’s too early to tell what the pandemic impact on real estate is, but added that numbers were trending positively as of June 2.
“There are 15 conditionally sold properties in the market. By all accounts this is a large number of pending sales and is indicative that buyer activity has picked up in recent weeks. The COVID-19 pandemic certainly curbed the number of buyers looking at homes, but that has been inreasing since COVID measures began being lifted.”
Hawboldt agreed and said there are a lot of unknowns right now in the market. She added that her office has been busy lately, but that not all realtors in the area will say the same.
“Of course the mortgage rates are certainly helping because they’re so low. It’s a great time for mortgages,” Hawboldt said, adding that things will change July 1 when requirements for mortgages are tightened.
CMHC announced in early June that it would tighten rules for offering mortgage insurance.
Among the measures being put in place is making it harder for those not putting at least 20 per cent for a downpayment to get mortgage insurance, and establishing a minimum credit score of 680, up from the current standard of 600.
On the flipside, the Canadian government and mortgage lenders have undertaken a number of measures – like payment deferrals – to support the mortgage industry and foster financial stability.
Lurie said the ability to defer mortgage payments has prevented a far worse scenario in the housing market. Some people’s incomes have also been affected, adding to factors that are slowing demand.
With the lack of demand and an expectation that supply will improve, Lurie anticipates some prices to move down this year.
Risk and uncertainty regarding the economic situation weighed on home prices which eased by nearly three per cent in March, compared to last year, the AREA report said.
Lurie expects sales to be fairly slow for the remainder of the year as it will take time for people to get back into a routine.
“And in Alberta, the situation is also a little bit different because of the energy sector. It’s not just COVID-19 affecting the market, we have the layered impact of the job losses in the energy sector,” Lurie added.
While impacts of COVID-19 may be temporary, the energy sector has a much more long term and significant impact, Lurie said.
Assuming there is no second wave that will shut down the economy again, lingering effects on real estate will push into next year.
Some areas that aren’t heavily based on the energy sector in Alberta may see recovery sooner than others, Lurie said.
Hawboldt noted that one positive factor in Yellowhead County is the Trans Mountain expansion project. Rentals in the area had been full throughout the winter with industry workers, and while they emptied during break up and the start of the COVID-19 pandemic, Hawboldt said rentals are slowly filling up again. Midwest Pipelines for the Trans Mountain Expansion Project and Banister Pipeline workers will transition back to the area at the end of June and will require housing.
She added that phones are getting busy again for rentals and she also received inquiries for investment properties related to pipeline work.
“We may not feel the same devastation that another area might feel because we have this pipeline activity,” Hawboldt said.
Investment activity in the area started to pick up in early March but flatlined when COVID-19 hit.
“We’ve done a lot of comparisons between different recessions and by far this is one of the worst recessions we’ve seen for some time. This is currently playing out to be worse than what we saw in 2015 and 2016,” Lurie said.
She explained that typically during a recession, not everything is impacted to the extent that it has been impacted during the pandemic.
One thing to consider is that there are some differences between segments of the market, Lurie said. Lower price segments are generally doing better than some of the higher end products, at least in urban areas, Lurie explained.
“It won’t be even across the housing market, you might see more price corrections occur in the higher end of the market than what you might see in the lower end of the market,” Lurie said.