Home Month and Year October 2020 Has COVID Affected Real Estate and Recreational Investment Purchases?

Has COVID Affected Real Estate and Recreational Investment Purchases?

The Long-term Benefits of Buying in a Down Market

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It’s hard to believe that less than a year ago the real estate market was on track to setting record breaking sales. Then a pandemic hit the world and changed everything in the blink of an eye. The economy hit rock bottom and many lost their jobs resulting in challenging employment and income circumstances. Shortly after, the real estate market activity also slowed down. But it’s not all doom and gloom and, over time, the market will correct itself. In this challenging time, there are people still wanting to purchase real estate and recreational investment property. The latter because the pandemic has forced people to vacation closer to home.

Despite the economic climate, there are benefits to purchasing real estate when prices and mortgage rates are at record lows. Calgary-based realtor Tanya Eklund says, “The long-term benefits of buying in a low market with low interest rates is having a tenant pay down your mortgage. We do not know when rates will increase, and when they do, it will affect the buying power of the buyer.”

Ekland does not personally deal with recreational properties, however, she knows agents in Canmore and British Columbia who have said they are extremely busy. “My belief in why this is trending,” says Ekland, “is because of the limitations around international travel and travel into the US. Canadians know it will likely be a while until restrictions are lifted but they want to be able to get away from the city to unwind and be around a more natural and peaceful environment. Buying property within Canada allows them to do that. We see many Calgarians purchasing in Canmore, Bragg Creek, the lakes outside of the city within a four to five-hour drive just to have a place to get away and unwind. This trend, I believe, is due Covid.”

Local CIR Realtor Catherine Chow agrees and adds, “Real Estate is a tangible way to accumulate wealth in a fixed asset. It’s a place to invest in an appreciating asset while providing the potential for passive income. Even if the market fluctuates in the short-term, the long-term reduction of debt is where your investment will pay off. Current low interest rates have made it easier and more affordable to purchase a property. In addition, anyone who is currently renting will benefit from purchasing by paying down their own debt and increasing their equity over time. The current low prices and interest rates are appealing to people who have been renting.”

Chow recognizes this has been a challenging time for many Albertans. However, for her personally, she has been busy helping clients who are in a financial position to invest in condos, fourplexes, multi-family buildings and commercial properties. “Investors are taking advantage of the low prices and interest rates along with an incredibly busy rental market. Data suggests that millennials have less confidence in purchasing and, as a result, tenants are staying in rentals for several years, which makes it appealing for investors. I also offer services to my clients to find, screen, qualify and place good tenants – this helps those who are reluctant to invest, nervous or don’t know how to get started.”

When looking at the Calgary landscape, it’s hard not to see the plethora of new builds currently under construction or sites being prepared to break ground. Some homeowners or investors prefer to purchase pre-construction. Aside from only having to put five per cent down, purchasing off the blueprint has its advantages and, because of the weakened economy, builders are offering buyers attractive incentives to purchase early and encouraging them take advantage of historically low interest rates.

Jayman BUILT President and COO Dave Desormeaux says, “New home sales across North America have been very strong in June, July and August – exceeding 2019 levels. This is true in Alberta as well. We believe part of this is due to pent up demand from lost sales causing a delay in our typical spring market due to uncertainty surrounding COVID in February, March and April. Consumers delayed their purchase decisions until there was more certainty around their employment, the stock market etc.”

Desormeaux points out that COVID has emphasized that ‘home has never been more important.’ “Some interesting post-COVID trends that appear to be driving sales; consumers realize with COVID that they need a proper home office space for both spouses, more space for home schooling kids and generally, more space for their families is the new priority. They do not need to live as close to the downtown core.”

Interestingly, the builder is seeing future demand for real estate occurring now. “People that were planning to buy in 2021 are purchasing now. Why? Since the Alberta recession began in 2015, margins for builders have dropped to levels not seen since the 1980s. Builders have reduced supply chain costs and competition has increased significantly resulting in aggressive pricing,” says Desormeaux.

“We believe new home prices can only go up from where they are today. Lumber prices have increased 105 per cent since June due to demand exceeding supply, primarily from strong new home sales and ‘Do-It-Your-Self’ retail sales for home renovations while consumers work from home and ensure their homes are more post-COVID friendly. As lumber and other supply chain costs escalate at near record levels, the average home price will increase $10,000 – $25,000 over the coming months. Just from material cost increases,” says Desormeaux.

Chow adds that because of increasing lumber prices, many people are choosing to build new homes. “When doing so, homeowners only need to pay the builder a deposit and the balance upon possession. This allows homeowners to take advantage of today’s lower prices.”

According to Desormeaux, there appears to be no relief in sight for the excess demand and supply shortages. As well, he mentions that there are strong rumours Alberta will have no choice but to consider concerns about tax increases – like a PST – due to a significant decrease in revenues and a historically high deficit.

In the residential sector, Ekland explains that the real estate market goes up and down over long periods of time. “If you review the last 20 years, you’ll see many peaks and valleys. There is less risk with holding real estate over long periods of time. The markets, especially in Alberta, are more vulnerable over a shorter period. For example, if you bought a home in the last five years, it would likely be worth less today compared to when you first purchased. On the contrary, if you bought a home 10 to 15 years ago, your home is likely worth more as you have weathered the valleys and taken advantage of the peaks.”

Chow reminds potential buyers that real estate has historically been cyclical, so at some point, the market is expected to rebound. “Even if it doesn’t,” says Chow, “the long-term reduction of debt over time in an asset you own is a benefit. At the end of 25 years, once the mortgage is paid, the property is yours.”

Ekland echoes Chow’s statement and says, “When buying investment property, you have someone else paying down your mortgage. In 20 to 25 years, you could have a mortgage free asset, which could provide you with passive income for retirement. Real estate is a great way to build wealth over time. In my experience, the real estate owners who have been the most profitable are those who buy and hold.

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