June 2020 Market Update with Miia Kelly

June 8, 2020

We’ve gotten through two full months of real estate sales during this pandemic. How did the second month differ from the first? Have home prices been stable? What did CMHC predict for the rest of 2020? What did CMHC change about their down payment rules which take effect as of July 1? Watch this video to hear my answers.

Click here to watch: https://youtu.be/June2020_MarketUpdate_MiiaKelly

If you’d rather just read the script, here it is:

Hi, it’s Miia here with your monthly market update.

How’s the Market? 

The month of May was the second full month of sales during the Covid-19 pandemic.

In the first month, April, we saw that the volume of sales and new listings plunged dramatically, by over 60% each. Buying and selling activity froze when the fear of the virus was new and unpredictable.

But, the average home price, in general, remained stable, because supply and demand dropped together and an overall balance was maintained.

Last month in May, we saw that buyers were gradually getting back into the market. Compared to April, the volume of sales in May was up by 55.2%. Compared to a year ago, however, they were down by 53.7%. So, we haven’t recovered to what would have been “normal” levels, but this was an improvement compared to a month ago.

Last month in May, sellers also got back into the market, but at a slightly lower number compared to buyers. In other words, the number of new listings in May was up by 47.5% compared to April. Compared to a year ago, however, they were down by 53.1%. So, again, we’re seeing a slight recovery.

The average home price at the end of May was $863,599 which was up by 3.0% from a year ago. Again, so far in this pandemic, we are seeing stability in home prices.

Remember, any time that the volume of sales is outpacing the volume of new listings, that means that the market is moving towards a stronger seller’s market, which is what we saw happening last month.

Industry News 

And that brings me to the recent release of CMHC’s Housing Market Outlook report which has been in the news for predicting a 9-18% decline in average home prices by the end of this year. This would indicate that we are shifting into a buyer’s market, if true.

“Our forecasts indicate that the average MLS® price will decline by 9% to 18% from its pre-COVID-19 levels before beginning to recover in the first half of 2021…”

  • Source: CMHC Housing Market Outlook SPECIAL EDITION – SPRING 2020 (May 27, 2020)

Their report has been met with some criticism from Realtors, which suggests that home sellers, on average, will NOT be in such dire need to sell at such a great discount.

The report does preface its predictions with notes warning us that the pandemic creates unprecedented uncertainty, so I think that we need to view these predictions as possibilities and adjust our expectations day-by-day as the world around us changes.

“The housing outlook is subject to unprecedented uncertainty due to the pandemic.”

“The precise timing and speed of the recovery is highly uncertain because the virus’s future path is not yet known.”

  • Source: CMHC Housing Market Outlook SPECIAL EDITION – SPRING 2020 (May 27, 2020)

Also – remember that these predictions are at the national and provincial levels, and that your local neighbourhood will have its own unique situations. For more localized information, speak with a local Realtor who you trust.

Changes to Down Payment Rules 

Also in the news from CMHC, starting on July 1st, if you are buying a home with less than a 20% down payment, then qualifying for a mortgage just got a bit tougher. CMHC is going to be more strict about your allowed debt payments, your credit score and your source of cash for your down payment.

As of July 1, 2020, for CHMC-Insured Mortgages (Applies to Down Payments Less Than 20% of Purchase Price):

Maximum Gross Debt Service Ratio: reduced from 39% to 35%

Maximum Total Debt Service Ratio: reduced from 44% to 42%

Minimum Credit Score: raised from 600 to 680 for at least 1 borrower.

Certain sources of down payment that increase indebtedness (e.g., line of credit) will no longer be accepted.

At this time, CMHC is NOT increasing their minimum down payment from 5% to 10% as they hinted at in Mid-May.

Just today, June 8th, Genworth, an alternative mortgage default insurance provider, announced that they are currently NOT changing their underwriting rules in accordance with those of CMHC.

As always, speak with a mortgage expert to determine your best mortgage options.

That’s my update for this month. If you have any questions, let me know.

Bye for now.