A country-wide lockdown put house sales on hold since March. But as the country slowly gets back to normal, Canadians are eager to get into the market and sales are returning to their pre-pandemic prices. Before you jump, it’s important to consider your financial situation and the looming effects of the COVID-19 economic downturn. Here’s what you need to know before taking the plunge into real estate today:

Up, up and away? House prices don’t only go up

Soaring house prices in recent years—particularly in Toronto and Vancouver— lulled many Canadians into a false sense of security that the ever-expanding equity in their housing nest egg will make them wealthy.

This isn’t necessarily so. You don’t need to look much further than the housing correction in 2017 when prices in the over-heated Toronto market fell by 20% in just four months from $920,791 to $732,292. There were new housing regulations such as the Ontario Fair Housing Plan that some analysts say played a role in the slump, but otherwise, there were no major economic challenges at the time. Other markets, like the Fort McMurray housing market, dropped in 2015 stemming from the crash in oil prices. These are reminders that real estate prices can and do sometimes come down.

More recently, Canada is seeing some of the worst economic effects on record as COVID-19 has led to over five million job losses and reduced hours, as well as a sharp downturn in the energy sector. This has prompted the Canadian Mortgage Housing Corporation (CMHC) to dramatically alter its outlook for real estate in May. CMHC CEO Evan Siddall spoke to the parliamentary Committee of Finance, stating that house prices were expected to drop between 9% and 18% over the next 12 months.

Lauren Haw, CEO and Broker of Record at Zoocasa, a Toronto-based real estate agency, says buying real estate should be a long-term investment and today’s economic conditions make it a particularly risky time for speculative moves in real estate. “Generally, churning real estate has transaction costs that eat into any earned appreciation, which include but aren’t limited to land transfer taxes, realtor professional fees, and moving costs,” she adds.

Therefore, it’s important to review your financial stability and job security, existing financial obligations, and to have an honest appraisal about your ability to carry a home for at least a few years.

What Happens if Home Values Drop?

When homebuyers bought at the peak of 2017, they soon found themselves “underwater”. Being “underwater on your mortgage” means that the house is worth less than you owe on it. You’ve lost your equity in the home and a recovery in prices could take time. If you’re underwater and sell your house, you’re selling at a loss. Of course, you’re under no obligation to sell, but being underwater gives you fewer refinancing options.

Is Your Job Really Secure?

Not every job lost during the pandemic will return. Before you decide to commit yourself to a mortgage, consider your job security, as well as your partner’s, and the industry where you work. Travel, hospitality, energy, food service, retail, and many other businesses are caught in the COVID crosshairs.

What if You’re a First-Time Buyer?

In addition to your financial ability to carry a home, there are lifestyle factors to consider.  According to Haw, it’s important to ask, “What’s driving my home search?” Is it a desire to build equity and have pride of ownership? Contemplate how the prospective property will provide the utility you seek. Consider how your lifestyle will evolve in the next five years and whether this property will satisfy your needs, such as a growing family or a home-based business. Also, think about how the pandemic may have impacted your lifestyle. Are you keener to live closer to family, have more space to work from home, or more private outdoor space?

“Currently, interest rates are at historically low rates, even on fixed 5+ year terms. This represents an opportunity to participate in the market, and potentially pay down your principal quickly, if you buy wisely. Therefore, it’s a good time to consider a home with rental-income producing potential to accelerate your payments,” says Haw.

Bottom Line

Buying a home is one of the biggest financial decisions you will make. A global pandemic and the largest economic shock in history is definitely throwing a monkey wrench into the mix. Many real estate professionals and industry publications may paint rosier pictures of the housing market’s resilience and ability to bounce back, but it’s important to think critically about what you read and question the motivation behind these overly optimistic views. Consider the risks in real estate and consider your own financial situation before rushing into the market.

Stephanie Hughes is a business writer and financial journalist in the Canadian markets. Her credit rating and market research articles have been featured in mainstream news sources like Financial Post, National Post, BNN Bloomberg, Maclean’s, podcasts, business radio stations, as well as many trade magazines. She specializes in industry disruptors, technology, real estate and millennial personal finance. You can read more of her work at stephaniehughesjournalism.com.