Businesses are closed or operating at reduced capacity. Millions of people are unemployed. Mortgages are deferred. The need for office space is being questioned.
To put it lightly, both retail and commercial real estate is experiencing one of the most transformative moments in history. While malls and brick-and-mortar retail has been under pressure for years, Covid-19 compressed a decade’s worth of change into a couple months.
The charts below highlight the current state the real estate market.
With the huge surge in unemployment and minuscule savings, Americans are suddenly unable to pay their bills. 32% of Americans missed (either fully or partially) their July mortgage payment.
Delinquency rates vary by property type (overall delinquencies approaching decade highs) but are rising rapidly.
New York is the most stressed area at the moment, likely due to its concentration of people/businesses, real estate valuations and the severity of regional lock-downs.
Toronto-area housing has remained strong through the downturn, with prices actually increasing.
Although Toronto has experienced a resilient housing market, it could face increasing pressure over the next several months as rental supply rises (driving down the price of rent). The decline in condos leased combined with the surge in listings has pushed the condo rental inventory from 1.5 Months of Inventory (MOI) at the end of March to nearly 4 months at the end of April.
How is Canadian real estate holding together? Government handouts. Approximately 20% of the Canadian population is receiving CERB – a $2000/mth support payment from the Federal Government.
If and when CERB benefits are taken away, Canadian real estate will likely face growing pressure. Not only is the supply of rentals growing rapidly, immigration is plummeting. This combination could tip Canadian real estate into negative territory. Of course, there’s always the possibility that immigration once again picks up in the future, but it’s debatable whether this will be enough to absorb the rise in housing supply.