COVID-19 Could Ruin the Housing Market?



As the lockdowns continue, concerns about key sectors of the economy continue to grow; this includes the housing marketing which is feeling significant pressure as homeowners north and south of the border are finding harder to continue paying their mortgages while they are out of work.

COVID-19 was officially declared a global pandemic by the World Health Organization on March 11, just at the tail end of winter. In the Great White North, this means that months of backyard hockey give way to warm temperatures, and for many, this signals when many
homeowners try to sell their house.


However, this year is shaping up to be different as millions have been told to stay in their homes while the disease spreads through communities from the Maritimes to British Columbia. To make matters worse it the lockdowns means that many people who can not work from home are left with few options to support themselves, and this can say that they are beginning to fall behind on their mortgages.


It is not as if Canadian homeowners had it easy as home prices were at or near record levels in most provinces, driven by an influx of buyers from outside of Canada. For recent homebuyers, this means that their mortgages were also at historical levels, and even if they had a good job before the crisis, many were struggling to pay their mortgage every month.


For those in Ontario or elsewhere, this could mean that their banks have already initiated the power of sale clauses in their mortgage agreements. This means that the banks have the legal right to sell your home – though there are ways to fight this.

Industry analysts are increasingly concerned that we haven’t even reached the tip of the iceberg when it comes to these actions, and many are expecting a flood of foreclosure proceedings to start in the coming months as the full economic impact of the shutdowns around the world begins to come into focus.


For those who do find themselves in this position or are worried that they might be in short order, they can visit for more information on what they can do to keep their homes.


As for the broader housing market, most new construction and renovation projects have already been put on hold, and there is a concern that even as restrictions are eased, these projects will not be able to restart quickly. Potential reasons include financing problems and the fact that some of the construction workers might be called to work on more urgent projects tied to meeting the needs of public health officials.


Also, the specter of degrading credit quality for millions of borrowers could make it harder than ever before to get approved for a loan. This would lock homebuyers out of the market for years to come, depressing demand, and eventually impact all homeowners as their property values decrease.


In terms of foreign buyers, it is still too early to know the full impact on the crisis on economies in Asia and elsewhere. Still, there is a concern that lockdowns in other countries will force these buyers to either liquidate their assets to meet commitments at home or to put off a planned purchase. Either way, the impact would be a dramatic decline in demand, which could push house prices even lower.


Add to this a level of uncertainty about the long-term economic effects that could have an impact on those who can afford to remain in their homes, and some industry observers believe the housing market is primed for a contraction that will dwarf the Global Financial Crisis.


One place where the impact of COVID-19 is being felt is on listings sites as some have reported up to 40 percent, and in markets such as Toronto and New York, the decrease in listings has already reached 70 percent.


What does all this mean in the short-term? While some purchases will go through, many would-be buyers are going to be inclined to sit on the sidelines – especially if they believe prices have the potential to fall another 10 percent by the summer.


Also, investors are already lining up funds to swoop up available properties when the time is right. The impact could be that homeownership rates in the period following the pandemic continue to fall as many will have no choice but to rent. However, this assumes that renters will have the ability to pay their rents, and at this point, this is not easy to forecast.

Over the long-term, the market is likely to find a new level – the only question is how low it can go before federal and provincial governments step in. In countries, foreclosure proceedings have already been placed on hold, but little has been done to protect consumer credit reporting mechanisms. While in other countries, few protections have been put in place so far. Even if these measures help to shore up the market, it could be several years before values return to pre-crisis levels.


Could COVID-19 ruin the housing market? At a minimum, it will make it harder for individuals in the coming months or years and this will have a direct impact on home prices.


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