Edmonton Market Analysis April 2020

Posted on: April 21, 2020

Can We Still Feel Confident in our Housing Market?

The first quarter of 2020 is behind us and as spring has arrived, the real estate market is entering a landscape never before seen. For the first time in modern history, the entire planet faces a common challenge that not only threatens our health, but also our social and economic customs. Everyone is affected in one way or another and while Real Estate may not be the hottest burning question, it’s an important one and certainly on the list for many.

Recapping Edmonton CMA’s first quarter results; the start of the year began with an upward trend in comparison to 2019 with more sales in January, February and the first half of March. We were then interrupted by the Covid-19 pandemic which effectively hit a hard, sudden pause button. As a result, the last 2 weeks of March, historically our busiest time of the first quarter, saw a sharp decline. Despite this, total sales increased by 1.7% over a soft 2019 (still down 7% from our 5yr average). It’s safe to say that sales were back, or even better than our regular pace.

The average sale price in March was down 0.8% from 2019 and 6.2% from our 5yr average. But here’s the twist: though demand came to an abrupt halt, so did our supply. The number of new listings to market fell nearly 10% from 2019, reducing our inventory from 7.5 months’ supply to 6.2. More encouraging news worth noting: 2 of the larger surrounding communities still saw significant spikes in sales from this time last year: Fort Saskatchewan and Sherwood Park.

What’s to come for the rest of 2020? We’re all awaiting to see when our lives will normalize and businesses will reopen. No one can predict when that will be at this point and it will take time to build ourselves back to business as usual. Sales will be undoubtedly slow during this period. The question of price however, will be dictated by the dominant feeling between buyer and sellers. Will panic prevail over patience? At face value, we would expect the former, with serious job losses and a daily dose of bad news. However those who expect a freefall and deep discounts on real estate may find themselves disappointed. Prices are dictated by an imbalance of supply and demand. When there are more properties for sale than buyers, sellers compete with each other for that buyer by lowering their prices. When there are more buyers than there are properties, buyers compete with each other, driving prices up. The amount of sales happening are much less relevant than the imbalance between buyer and seller.

What separates this global pandemic from a typical economic slowdown is the activity has slowed on both ends. Many buyers that are hitting the pause button, but sellers pulling out as well.

Just as any other major economic change, buyers will find good opportunities, but don’t expect an abundance of panicked sellers making irrational choices in their selling prices. As long as government and financial institutions continue with assistances, (most notable in this case is mortgage payment deferral), there won’t be a need for it. Ironically the lack of growth in the Edmonton market will assist in subsiding panic sales as there is little to no equity growth for homeowners to attempt to cash out on. In other words, most sellers aren’t in a position to drastically reduce their prices, even if they wanted to.  

Regardless of circumstances, every human will always need a place to live. As builders slow new construction and less people put their homes on the market, the balance between demand and supply should be relatively stable. Markets, however, are dependant on new buyers. Whether from first time buyers or in-migration, these groups inject new money into our market, helping move up buyers sell their homes so they can buy a larger one, and that seller can move up or downsize; each a crucial component that contributes to the domino effect of the sales cycle. Many of today’s would-be buyers will push their plans back to a later date, but two positive consequences will arise as a result:

1. The rental market will strengthen in the short term (those buyers still need a place to live) and

2. A pause in sales activity today sets up the market for a spike tomorrow.

Why? When today’s delayed buyers eventually purchase, so will those who were already on that future schedule, ensuing greater activity in one period than usual. Whether this effect is short and sudden or long and gradual, the sales spike will increase consumer confidence, initiating healthy momentum. Informed investors and buyers feeling safe with their employment will take advantage of this now as they understand where we are in the cycle and what is coming in the future.

There’s no doubt we’re in unfamiliar territory that will revolutionize economic and social customs. It is difficult to predict the outcomes in times of change, but the best approach is first to remove ourselves from the storm and observe with a 20,000ft view. Humans are amazing innovators. We find ways not only to survive, but to thrive. Its been done since the beginning of time, bringing us from prey to predator and taking us from caves to condos. We’re already seeing it happen as we have more tools than ever before to help us transform business models. Real estate is affected by all changes but there is a reason its industry is deemed an essential service. As long as people need a roof over their heads, there will be demand. Expect to see market activity contract in both sales and listings over the short term, then follow up with an expansion as Real Estate will be one of the leading industries contributing to our economic recovery.

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