Along with the rest of the country, the Covid-19 pandemic is wrecking havoc with the Prince Edward County real estate market.
Home Sales Collapse
Home sales in the County are highly seasonal. Starting from the slow months of January and February, monthly sales normally climb as the weather improves.
This year is different: rather than climbing, monthly sales have fallen as public concern about COVID-19 has grown.
After Ontario declared a state of emergency on March 17th, April home sales fell 55% compared to the average sales for the month for the previous 5 years .
May has started off on a similar footing with weekly sales running at half the average rate for the previous 5 years.
Listings Fall Too
With the state of emergency in place, concerns about potential contamination from showings have discouraged many potential sellers from listing their homes.
The number of homes actively listed for sale fell by 55% this April compared the average new listings for the previous 5 years.
Months of Inventory Grows
At the current rate of sales, April’s listings are equal to a supply of 15 months, double the average level over the previous 5 years.
Inventory could grow even further in the coming months. An ongoing decline in bookings for short-term rentals could result in a surge in listings from Airbnb owners in financial distress with fixed costs and shrunken revenues.
Pressures on Prices
With the supply-demand balance moving in favour of buyers, a fall in prices is to be expected. The 3-week, exponentially-weighted moving average chart for house prices (above) is suggestive of a price decline.
A decline in local prices would be in line with the national outlook. The consensus outlook of major financial authorities is that house prices will fall in real terms of the next year.
However, given the uncertainty around the course of the economy, it’s no surprise that there a wide range of views among financial experts: TD Bank expects house prices in Toronto could increase by as much as 6.1% this year, while Canada Mortgage and Housing Corporation (CMHC) is forecasting a 9-18% decline.
Implications for Buyers
With the collapse of sales and the growth of inventory, the supply/demand relationship has shifted dramatically in favour of buyers.
Does that mean this is a good time to buy? It depends on personal circumstances and your assessment of where the economy is headed.
Economists are universally agreed that we are entering a recession.
Optimists think that it will be V-shaped, with a rapid decline followed by a rapid recovery once the pandemic is over. This would argue in favour of buying now while sales are slow in the expectation of a rapid market rebound.
On the other hand, pessimists expect a prolonged recession with some even making comparisons to Great Depression of the 1930’s. If this is what happens, we may be nowhere near the bottom of the market in terms of demand and prices.
Anyone considering a home purchase now has be prepared to deal with both scenarios. In either event, it’s not an exaggeration to say that Covid-19 wrecks havoc with County real estate.
How much has the average price dropped?
My wife and I are looking to buy in the area.
The honest truth is that it’s too early to say for sure how much prices have dropped. With months of inventory at such a high level, there will be downward pressure on prices. However, putting an exact number on it is tough with sales of only 5-6 houses per week. Booking rates for short-term rentals will be important to watch as the summer unfolds. There are an estimated 800 investor-owned homes in the County used as short-term rentals, most of them heavily financed. If booking rates remain low as we move into the summer season, I expect we will see many come up for sale..