During Covid-19, homebuyers have eshewed pricey, densely populated urban centres in favour of remoter locations. If your client is thinking about joining the exodus, they may want to consider arguments against doing so, as detailed in a report from CIBC Economics on Thursday.
The Canadian housing market has been “racing ahead with no looking back,” the report said, referring to the country’s strong housing sales despite the recession. Higher-income buyers were largely unaffected financially by economic shutdowns and could take advantage of historically low interest rates.
Such pandemic-related factors as well as high home prices in big cities increased demand for single-family homes in less populated areas.
Such housing trends aren’t likely to last, however, the report argued.
For example, ahead of the pandemic, home prices were rising at a faster pace in remote centres relative to urban ones, like Toronto, and that pace has only increased since Covid. As a result, prices in remote centres “risk reaching a resistance level, in which the premium paid to live in a big city has narrowed enough to trigger second thoughts about moving,” the report said.
Further, the trend of working from home may fail to become permanent.
“Despite the wave of companies announcing permanent work-from-home policies, much of the post-pandemic world might revert back to operating like the pre-pandemic one,” CIBC said.
Based on a StatsCan survey of employers, the report estimated that the percentage of employees currently doing 100% of their work from home would be roughly halved after Covid-19.
Further, moving out of the city could hurt your client’s future job opportunities.
“Even if those moving to more remote locations guess right, and they’re actually able to do all their work from home post-Covid, there’s still a catch: other employers might not be so flexible,” the report said.
To insure against the risks of employment mobility and being forced to return to the office, high earners could purchase urban condos to stay at during the work week, as is common in cities like New York and London.
If your client is considering such a move, “now might be a good time to make that investment,” the report said.
Condo price appreciation has lagged relative to single-home price appreciation during the pandemic, but that likely won’t last long.
CIBC expects demand for urban housing will return after Covid as immigration levels normalize.
Even as things stand, urban population growth in 2020 was probably better than records show, the report said, because of hidden numbers related to non-permanent residents in Canada with expired visas, as well as Canadian residents returning from other countries.
“Some of the fears surrounding downside risks for real estate tied to urban population growth might be overdone,” it said.
The bottom line: “Should Covid fade into the background, as is expected, the vibrancy of cities will return and so will the demand for housing within them,” it said.