The Covid-19 pandemic wrecked havoc with the Prince Edward County real estate market during March and April. As the province started to open up in May, we saw County sales and listings increased, but were still way below normal.
Home Sales Increase Slightly
Prince Edward County real estate is highly seasonal. Starting from the slow months of January and February, monthly sales normally climb as the weather improves.
This year has been different: rather than climbing, monthly sales started falling in March as public concern grew and the province “shut down” to control COVID-19.
After Ontario declared a state of emergency on March 17th, April home sales collapsed, running at 45% of average for the previous 5 years.
As the province started to open up in May, sales increased to 68% of what’s normal for the month. Put another way, home sales increased in May but remain significantly below the normal level.
New Listings Increase, But Total Active Listings Fall
When the state of emergency was declared, many potential sellers were discouraged from listing their homes because of concerns about potential contamination from showings.
In April, new listings were only 42% what they normally are for the month.
During May, the number of new listings increased to 68% of the 5-year average for the month: smaller than normal, but up compared to the month before.
However, far more listings than normal were allowed to expire during May. As a result, the total pool of active listings available for sales grew only slightly.
Months of Inventory Falls
Months of inventory is an indicator of how well supply and demand are balanced.
In April, listings were equal to a supply of 15 months, an all-time high which signified that demand was low compared to the listings available.
During May, Prince Edward County real estate sales and listings increased, but at the same time, older listings expired at an accelerated rate. As a result, the months of inventory fell to a more normal level.
In other words, the May market was smaller than normal for this time of year, but supply and demand were in better balance.
Implication for Prices
With May supply-demand moving closer to balance, an increase in prices compared to April is to be expected. The 3-week, exponentially-weighted moving average chart for house prices (above) is consistent with such a development.
Although Prince Edward County real estate sales and listings increased during May and the market appears as though it might be headed back toward normal, uncertainty about what will happen in the future has never been higher.
If the pandemic threat recedes and the economy bounces back quickly, optimists like TD Bank expect house prices in Toronto could increase by as much as 6.1% this year.
On the other hand, if there is a significant second wave or if the economy falls into a prolonged recession, prices could decline significantly: Canada Mortgage and Housing Corporation (CMHC) is forecasting a 9-18% decline in real prices over the next year.
In addition to factors affecting the national economy, there are two local factors which could have a significant effect on County real estate.
If more city-dwellers want to move to the countryside as a result of the pandemic, demand in the County could increase.
The state of tourism will also have a big effect on the County. What will happen to tourist demand is still up in the air: some experts expect that a continued economic slowdown will limit tourism while others predict an increase in domestic tourism with foreign travel (and cruises) cut off.
Implications for Buyers
Is this 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 slower in the expectation of a rapid market rebound.
On the other hand, pessimists expect a prolonged recession with the most extreme even making comparisons to Great Depression. If we are entering a prolonged recession, we may be nowhere near the bottom of the market in terms of demand and prices.
Personal circumstances also come into play. For buyers with cash or assured incomes and long time-horizons, this could be a good time to buy if the ideal home is found. For buyers who would need a large mortgage or whose income could be at risk if the economy tanks, buying right now would be very high risk.
Uncertainty rules for now.