The doom and gloom predictions by analysts that Canada’s real estate market would implode due to Covid-19 seem to have vanished and while there were expectations of a slowing real estate market, overall the Canadian real estate has reacted differently.
At the start of the pandemic when lockdowns were imposed, physical selling stopped, (no more open houses), but that did not stop people looking for homes. In April, National Home Sales fell by 56.76%, it was due mainly to a lack of listings rather than buyers. Sellers removed their homes off the market on fears that it was safer to stay where you are and wait out the pandemic. This impacted immigrants and first time home buyers who were left little or no inventory to look at. Even with the drop in sales, house prices remained unchanged and in some areas was even higher.

Time progresses

Those buyers who took a wait and see attitude thinking that prices would fall, found themselves on the outside looking in. In Canada’s larger markets, prices still stayed resilient with Toronto’s market coming back to life. May’s national home sales were 56.9% higher versus April’s but still lower year over year. June’s numbers provided even more positive news, both the Greater Vancouver Area and the Greater Toronto Area had higher home sales, nationally home sales on the Canadian MLS® Systems in June 2020 rebounded by a further 63%, bringing them back to normal levels for the month – some 150% above where they were in April. July’s national home sales grew even higher by 26%, the highest monthly level ever recorded. In British Columbia house prices were up 12.5% versus last year, the provincial average in July 2019 was $682,739 versus July 2020 of $768,061. In Ontario, house prices increased 18.1%, July 2019 provincial average was $596,765 versus July 2020 $704,985. Canada’s Mortgage and Housing Corp. is of the opinion that house prices will fall back once this recent pent up demand is over.

According to the Canadian Real Estate Association, the statistics shows: “The actual (not seasonally adjusted) national average price for homes sold in July 2020 was a record $571,500, up 14.3% from the same month last year.”

The national average price for homes sold from July 2019 to July 2020

Interest Rates and why they will stay low, providing demand for real estate

One of the key factors in this continued support of the real estate market is interest rates. Rates are at all time lows and this is providing a great incentive to purchase homes, especially with first time buyers, even with added restrictions set by CMHC and the federal government in regard to qualifying levels, first time buyers are still looking. Mortgage rates for residential properties are as low as 2% for a five year fixed and this puts a lot of real estate within a lot of Canadians reach.

Further incentive is that economists and the Bank of Canada have indicated that rates will stay low for at least a year or two and it will likely take five years for the Canadian economy to recover from the pandemic.

Offshore Investments for Canadian residents, what you need to know

While it is easier for non-residents of Canada to purchase property here, the rules for Canadians buying offshore are as varied as the number of countries there are in this world. There are no blanket sets of instructions, other than one must do their homework very carefully and diligently.

To start with, what does it cost to purchase and can I finance here or in the country of the property? It basically depends on the relationship you have with your financial institution, and whether they want to lend money against an offshore asset. Either way there is a currency exchange and an international wire transfer involved. If you think that you may want to borrow in the country that you purchased such as the U.S.There are a number of things that you should have prepared before you start:

  • All your identification is up to date even your drivers license
  • Proof of residency in Canada
  • If your are still working, proof of employment
  • Last two years tax returns
  • Letter from your bank showing how much you have to spend and other financial details

Remember while you may have purchased a condo as a partial investment, renting it out part-time, some financial institutions will not add the potential income to the revenue stream.

As the coronavirus impacts the world, buying real estate outside Canada has become even more complicated. The pandemic no longer allows non-essential travel thereby leaving the decision making process in someone else’s hands, your realtor or property manager adding further risk to your transaction.

Currency Risk and how to lessen its impact by hedging

While your initial down payment starts in Canadian dollars, there is always the risk that the value of the down payment will fluctuate. The Canadian dollar has ranged from 1.3000 to 1.4600 to the USD in the past two years, so depending on where you bought your USD this will always remain. 

The monthly payments can be done one of two ways, if there is a local income stream then one will offset the other, thereby negating any currency risk. Otherwise, you can purchase the monthly payments and have the funds wired to your offshore bank. It is usually better to exchange your funds within Canada as the rates are generally a lot better.

What is the current status of the market

While the overall economy is slowly going back to work, it seems that more and more people will be working from home. That means those that intend to work from home permanently, will now be looking for larger spaces as the proverbial bachelor pad will no longer suffice. People will need to have some form of space definition, i.e. set area within the apartment or if they have a house, a defined office.

House sales in Canada are doing better, not as good as last year, prices however, continue to climb, especially in Toronto. Also, rental apartment constructions are at near record levels even with lower immigration numbers, the current vacancy rate in Toronto is 1.8% up from the low of 1.4%. This is still quite low, as a comparison Manhatten has a 3.7% vacancy rate more than double Toronto’s. Canadawide home prices have held up, Calgary’s prices are expected to remain stable due to a decrease in supply levels, but the elephant in the room is oil prices which have moved higher recently, but whether they can withstand the storm of a weaker economy remains, to be seen.

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