Like everything else in our world, real estate has felt some dramatic effects from the pandemic and shutdown over the last 7 or 8 weeks. March sales results did not see the impact, simply due to the strength and inertia of the strong sellers’ market we had been experiencing prior to mid-March.
First Quarter Results 2020:
The number of sales transactions was constrained in Q1, due to the absence of available listings required to satisfy buyer demand. This resulted in widespread multiple offer/bidding wars and average price increases we have not seen in a decade or two. In the first Quarter the average residential selling price for residential properties was up 18.8% and condos 23.2%.
Another critical factor in March end results showed that listing inventory was down 42.5% vs March 2019.
Showings plummet in 2nd half of March:
A foreshadowing of the effect COVOD-19, was provided from Showing Time® (a third party software and service provider that provides automated showing services for Ottawa Real Estate Board members) which reported that their data showed an 81% drop in property showings between March 12th and March 30th.
An “essential” service but certainly far from business as usual:
The Ontario government determined real estate was an essential service, given its fundamental place in the centre of the housing industry and connected supply chains, including banking, legal, mortgage financing, construction/trades, building materials, etc. A lot of our economy is connected to housing, so it makes good sense that the industry continue to function in some fashion. Though clearly, only those with a significant need to buy or sell would be in the market.
April sales plunge but prices still rising?
The number of properties sold in April dropped 56% for residential properties and 51% for condos vs April 2019. Despite the depleted demand, the average residential selling price during April was up 6.8% to $521,694 and the average condo sold for $321,813. (up 6.3%) If this seems to be a bit of a surprise, given the relative lack of overall sales, it can probably be explained by the level and prices of available supply.
New listings (-57.3) and total inventory (-48%) balance lower demand:
New listings also showed a dramatic decrease during April of 57.3% mirroring the lack of sales. This can perhaps be considered a bit of a silver lining, as it keeps the diminished demand in some balance with supply. One key statistic industry watchers consider is the sales to new listing ratio. In April, this ratio was still a healthy 76% which normally would be indicative of a sellers’ market. So there are still a fair number of serious buyers relative to the number of listings available.
Multiple offers still?
Believe it or not, there are still many bidding war or multiple offer situations occurring. Far fewer than before but still relatively commonplace, as the lack of available properties balances the number of buyers in the market. This is especially true for entry level and mid-price level properties.
Most military moves on hold
A significant portion of our spring market is military and other government personnel being relocated to and from Ottawa. Many of these moves have been deferred and we believe account for 15-20% of the sales shortfall in April. Most of these listings and sales happen April-June, so hopefully these ultimately occur but for now that activity seems mostly “on hold”.
Will prices be dropping?
There are many headlines out there discussing how much prices may fall, depending on how the pandemic and economic fallout plays out. Please remember that headlines are clickbait and at best they are someone’s opinion. Often the headlines don’t match the article and have limited data supporting them. These often relate to other cities that can be more dramatic in price swings both up and down than what we experience here in Ottawa.
If you believe in history as a guide, Ottawa has only experienced an average selling price decrease over a whole year 4 times since 1956. (1961, 1962, 1995, 1996) Also, the largest decrease was only 4.3% in 1961 at the height of the Cuban Missile Crisis. We have a remarkably stable market for real estate and we would expect that will continue.
What we believe tends to happen during a recession is that real estate activity just stagnates, with few people either buying or selling. Prices also tend to be very flat and not increase much, though neither do they drop off significantly. The 1990’s were like this in Ottawa, as both a recession and a deficit fighting Jean Chretien government, cut Federal government headcount and program funds to the bone. Ottawa house prices in the whole decade only rose a total of 8.9% or less than 1% annually. It was not a fun time to be a Realtor, as Ottawa Board membership was 2,800 to start the decade and dropped to 1,300 by 1995/96. It took until 2009 for that 2,800 membership number to be reached again. (Currently OREB membership stands at about 3,000)
How will the rest of the spring/summer market to play out?
May is typically the #1 sales month, with June #2 and April #3. It is hard to see transaction numbers improve significantly beyond April’s relative performance levels vs 2019, as conditions remain much the same. Prices may moderate slightly but just on sheer inertia and the baked in prices of existing listing inventory, they should probably continue with a slight increase in the single digits above 2019 levels.
Based on early May activity unit sales are trending about 40% lower than May last year and the same is true of the number of new listings. There is no magic crystal ball to predict how things will unfold in the coming months, so we expect most to continue to sit on the sidelines for the next few months.
As always, your Realtor is available to discuss your own specific circumstances and provide appropriate consultation.
Gord McCormick is the Broker of Record for Oasis Realty, a boutique residential real estate brokerage that has been serving clients in the Ottawa area for 14 years. Gord has a wealth of strategies and tactics for both hot and cold markets which he shares via his blog at Oasis Realty, on Twitter or on Facebook.