What does the Novel Cronavirus mean for Toronto Real Estate?

13 Mar 2020

Canadian home-owners have been lucky enough to see a near-consistent rise in real estate prices in the past. To many homeowners and buyers - real estate has been a sound - almost ‘sure shot’ investment - and naysayers have often fallen behind.


Discovered in late 2019, the COVID-19 disease, caused by the novel Coronavirus, began to spread from Wuhan, China. Initially, the information was hard to track - especially with fears that the Chinese authorities were downplaying numbers. Soon, however, the disease began to spread, and the numbers began popping up over the world. As of now, the World Health Organization declared it a pandemic after weeks of being criticized for holding off on this decision.


Let's first talk about viruses, numbers, and its potential impact on human health. As of the date of this article, March 13, 2020, there are 144,052 confirmed cases of COVID-19, with 5397 deaths (according to https://www.worldometers.info/coronavirus/). With some simple math, one might say the case fatality rate, according to some simple division, is 3.7% - many of which are amongst the elderly or immunocompromised. This may not be the case - especially due to the lack of test kits in the world (this would bring down the fatality percentage we had calculated earlier).


Keeping in mind that, although the majority of cases are mild or even asymptomatic, many still require hospitalization, 20% in China and in Italy 10% requiring ICU treatment. Even acknowledging that Italy has an aging population, these numbers are staggering, especially when some epidemiologists predict 160 million to 214 million can be infected in the US alone (https://www.nytimes.com./2020/03/13/us/coronavirus-deaths-estimate.html). With saturated hospital beds, so many of which are already over-capacity around the world, we can expect the fatality rate to increase, leaving sick and vulnerable people without ventilators and intensive treatment.


China’s numbers have been decelerating now, but after drastic measures. Keep in mind the same draconian measures simply wouldn’t be accepted in North American culture (but really only time can tell). As celebrities like Tom Hanks test positive, it's clear this is only the beginning.


The S&P 500 fell into the fastest bear market on record, falling more than 20% below its record closing high made in February - the TSX (Toronto Stock Exchange) taking similar plunges. Bank of Canada, in anticipation, lowered interest rates to stimulate spending. As you may already know, lower interest equals cheaper debt - which means cheaper mortgages for potential home buyers.


This influx of home buyers has now made it a sellers market. Home sellers are now selling properties well over asking all over Toronto and buyers - keeping the “real estate is a sound investment” mantra in their minds (perhaps) - continue to buy.


So what should you be doing? It depends on your assumptions and, given that real estate is often a lagging indicator of the market, can take some time to find out if you made the right decision.


Assuming the coronavirus poses no real health risk, and you think Trump's national emergency announcement on Friday March 13 will help slow down the virus before we reach the predictions stated earlier. Also assuming that the economic impact of multiple leading economies, the supply chain disruption, and severe losses in travel/tourism and other industries, can all be reversed quickly. And also assuming that Canada’s housing and employment will go largely unscathed in this whole ordeal - it is a good time to buy.


Otherwise, with the influx of buyers, and the looming economic uncertainties, many are trading their assets for less risky cash. But your home is not just an asset you can buy and sell with a click of a button or a call to your broker - it requires time, and you still need a roof over your head - so the numbers you come up with have to compare to renting or your other options.


The novel coronavirus has made it clear it is changing the economy significantly. Some say it was the last straw to an artificially inflated economy long overdue a correction. Take a look at your personal financial situation and see how long you could survive potentially losing your jobs, or take a significant impact on your assets. In the meanwhile, keep your social distance, wash your hands often, and keep an eye out on the markets.


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