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THE PANDEMIC AND THE REAL ESTATE BOOM

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In March 2020, the full effects of the Covid-19 pandemic became evident. Lockdowns and various restrictions were implemented to minimize the adverse health effects of the virus. It was widely anticipated that the global economy would enter into a major recession with an associated negative impact on the real estate market, namely a “bust.” To almost everyone’s surprise, including most Realtors, the real estate market in Canada quickly entered into a “boom” in 2020 with significant increases in both sales and prices in virtually all areas of the country. At the same time, the hand-wringing began among economists, policy makers and market analysts. They were concerned with what was variously termed an overheated market, the real estate bubble, the real estate craze, etc. The overriding theme was that policy makers should take action to “cool” the real estate market. In an early May 2021 issue, the Globe and Mail ran no less than six articles on “Canada’s Housing Boom.” What has received little media attention is that residential home prices have increased dramatically on a global basis during the pandemic. A recent Knight Frank Research Report found that some 89% of the fifty-six countries included in their Global House Price Index experienced a price increase in 2020. The was an annual percentage change of twelve of the economically developed countries. These ranged from a low of 4.8% in Australia to a high of 18.6% in New Zealand. Canada experienced an increase of 9.4%. This is all to say that the current real estate boom is not unique to Canada. It is being experienced by many countries. The research report found that low interest rates sparked a demand for housing while supply remained tight in many countries. In this regard, the pandemic in itself exacerbated the supply of housing. Initially, many home owners were concerned with the prospective of having their homes open to strangers during the initial phase of the pandemic and as a consequence, didn’t put their homes up for sale. Further on, when the market did pick up, many home owners were reluctant to put their homes on the market given the risk of being unable to find another suitable home in the fast moving real estate market. As the populations are vaccinated and economies reopen, it is anticipated that policy makers will reduce stimulus measures allowing for an increase in mortgages rates. As well, supply will likely increase as the risk of Covid-19 infection decreases. Taken together, the upward pressure on prices should subside.