The Canadian housing market has not been immune from the economic impact of COVID-19. Kim Parlee talks with Beata Caranci, Chief Economist, TD Bank Group, about the impact of COVID-19 on the decline in Canada’s housing activities and the outlook for a market recovery.
- Hello, and welcome to MoneyTalk's COVID-19 Daily Bulletin for Thursday, May 7. I'm Anthony Okolie. In a few minutes, Kim Parlee will be speaking with Beata Caranci, chief economist TD Bank Group, about the impact of COVID-19 on Canada's housing market. But first, a quick wrap of today's headlines.
Changing of the guards-- as of market open today, Shopify is now the biggest company in Canada by market capitalization, replacing RBC at the top spot. Meanwhile, unemployment levels continued to swell in the US last week as over 3 million Americans applied for unemployment benefits, bringing the total to more than 33 million over the past seven weeks.
China's exports rose for the first time this year, climbing 3.5% year over year as more limited shutdowns in Japan boosted demand for Chinese goods.
A grim new forecast from the Bank of England, which is predicting the UK economy is heading for its worst crash in more than 300 years because of the coronavirus pandemic. Finally, with gyms closing their doors during the COVID-19 stay-at-home orders, exercise bike maker Peloton is thriving. The company reported a 66% jump in sales as more people signed up for its online fitness subscriptions.
And that is a wrap of today's headlines. Next, Kim Parlee's conversation with Beata Caranci.
- Canada's housing market has been fairly resilient. But how is it looking now? And what will the shorter-term and longer-term effects be from COVID-19?
I start off by asking Beata Caranci that question.
- The real estate's going to be a really interesting outcome because housing demand is a byproduct of the economy. So basically whatever happens in housing, it tells you what's happening in the job market. It tells you what's happening with population flows, confidence. And those are all kind of coming together to produce the outcome of housing demand. And so we think you could see some near-term-- we think it's very likely-- near-term interruptions of population growth from immigration flows.
And Ontario, in particular, and BC have seen quite a bit of demand push come from strong immigration flows. And if you get a slowdown in that, which we suspect will happen just by the simple fact that, entering on a skills basis, there may not be as many plentiful jobs, and so there may be less interest from that perspective. So that element could take some of the demand side away from the housing sector that has been just taken for granted. So we'll get a really good sense of how much of that demand side was driven by the population flows as we go through this cycle.
So that's an important element. And then the other one is jobs. So if the jobs don't come back as we expect, then we will get a much more belabored housing cycle by extension. So these are the two interplays that we're watching as the most important determinants of where we're going to be on the housing side. And then the supply will adjust accordingly. So we've already seen supply come down significantly in the near term, for good reasons. Social distancing-- the last thing you want to do is have strangers walking through your home. So a lot of people have taken off their house from the market. But if the debt situation becomes problematic, if jobs don't come back, you will see that supply influx come in and put downward pressure on prices. So it's really coming down to these two elements of population and jobs creating that demand flow into the housing market.
KIM PARLEE: On the jobs front, when you're taking a look at forecasting, how does the-- for lack of a better word-- quality of the job impact how this impacts the housing market? Someone losing a low-paying, no-benefit job is probably not going to impact housing as much as the former. Or am I wrong?
- No, that's right. In terms of where you lose the jobs, when you look at those who are more likely to be homeowners and carry on a mortgage, these are generally people in full-time positions. They're going to be more middle-income and above. So these are individuals that if you see that segment get hit particularly hard, it would linger. That has not been the case so far. Unfortunately, a lot of the burden of the job market has been borne by the lower-income households, and in particular by the younger generation. And they may be more on the renter side.
The housing market may also form a little differently in terms of the segments of preference. So what we've seen in the past is very tight supply for detached homes. But there is a pretty decent pipeline of supply of condominiums, especially in your major markets like Toronto in particular. And so you may see a preference of people where the detached market, for those who maintain their jobs and income, move into that segment of the market. And the condo market may be slower in terms of demand and price pressures in that segment because there's quite a bit of pipeline supply still filtering through the market. And construction has continued in that area.
- Last question for you-- when you take a look at geography in Canada and real estate, are there some housing markets you think it might be more vulnerable than others?
- Well, I think when we look at where the hottest markets were before the health crisis, it would have been predominantly in Quebec, Montreal in particular, Toronto and area in Ontario. So these were the markets that were moving at the fastest clip. So the degree to which that was occurring because of domestic speculation, basically investors thinking this is a great time to get an investment property, that starts to take on an additional risk given the amount of uncertainty we're looking at. Ontario was the province that was attracting the greatest share of immigrants coming through. So if that gets disrupted, Ontario would be vulnerable from that perspective as well. So there was a couple of pathways that could affect those markets in particular. Toronto also has that build happening in the condo segment as well. So there's that supply coming on board as well.
Then there's the element that, when you have hot markets like Toronto and Montreal, what people would have done is likely have bought a home before having sold their home. And then March and April come along, and that doesn't look like such a great strategy. And so we might see some near-term selling pressure related to people who need to sell a property for the simple fact that they have a commitment on the other side of the balance sheet. But that's not likely something that will continue on as we get into the late summer months.
- Beata, thanks very much.
- My pleasure.