Have country folks duped the city slickers?
Rural and exurbs Canadians have been selling their homes at a record pace in 2020. Headlines focus on how in a COVID-19 world, people want more space, driving demand for big houses, but if these homes are so desirable, why are so many existing residents willing to sell?
Recent news headlines tell us that homebuyer preferences have changed because of the pandemic and that people feel an urgency to buy sooner than later.
Changing homebuyer preferences due to work-from-home and home-schooling
According to Nanos and the Ontario Real Estate Association's research, 26% of Ontarians felt that their current home was ill-suited for physical distancing health measures. Many Canadians feel that they need more space for:
Office space so one or two adults can work-from-home
Segregated space for home-schooling
Home gyms
"COVID-19 – and the physical distancing and isolation that comes with it – is impacting what buyers are looking for in their next home. 1 in 4 buyers have now shifted their preferences when searching for their next home, specifically when it comes to a bigger property with more space/amenities (28%) and more outdoor space (25%)."
It's not enough for a 'starter home' to be a place to eat, shower and sleep between work, school, and social outings. The change in preferences has been so profound that developers are changing how they design new projects. Condo floorplans will expand, making them more competitive compared to buying a modest 'fixer-upper' bungalow.
At Mortgage Sandbox, we would like to see developers build more 4 and 5 bedroom condos because:
Not everyone can afford to buy a house for their family.
Many parents who work-from-home and have taken on child-minding find it challenging to stay on top of necessary house upkeep (i.e., mowing lawns, clearing eaves, shovelling sidewalks).
Many people prefer to live in higher-density neighbourhoods with all the essential amenities within walking distance.
High-density living is safer during a pandemic than suburban living. Whether it's the city centres' infrastructure or residents' behaviours, cities have lower per capita COVID-19 infections than suburbs.
The urgency to buy now
“Several factors explain the stunning strength in sales observed in recent months, including low borrowing costs, the relative mix of employment/income losses, and the release of pent-up demand after a muted spring selling season,” noted TD economist Rishi Sondhi.
At Mortgage Sandbox, we also believe that some Canadians understood that Wave 2 restrictions were likely and decided to find a bigger home before Wave 2 restrictions came into place.
If houses in the ‘boonies’ are so desirable, why are so many existing residents selling?
We interviewed some Realtors, and they say that some of the people selling houses during the pandemic fall into these two categories:
Baby boomers with their retirement savings tied up in real estate who opportunistically sold their home because this is the hottest real estate market they’ve ever seen in their local area, and they don’t expect it will stay this hot.
Owners of homes in the suburbs and exurbs whose homes have ‘complications’ that they hope buyers from the city will underestimate.
A ‘once in a lifetime’ hot market
There is no doubt that buyer preferences have changed, and people want more space. Still, the current surge in rural-exurb interest is pandemic-related, and once the pandemic is over, the market may never be as supply-constrained as it is today. You can argue that the city has limited land supply for houses, but rural acreage has plenty of potential for subdivision, so the supply constraints are weaker in the long run.
Buying a lemon
Complications that a city dweller may underestimate include:
Infrastructure - low-quality tap water or reliance on septic tanks and wells.
Environmental Issues – properties that were once working farms may have also had light-industrial businesses. Buried oil tanks, forgotten containers of chemicals, or discarded asbestos may go unnoticed on a large property.
Municipal Services – long distance to schools, hospitals, emergency services, and public transportation.
Drainage – if the property is flat and it may not drain well, and this can be a problem with snowmelt or heavy rain.
Flooding – properties near lakes, creeks, or rivers may flood regularly, and a local buyer would know this.
Maintenance Costs – Replacing a roof, repairing plumbing, or installing a new furnace can cost more and take longer in the country.
Under normal circumstances, the seller of a home knows much more about their property than the buyer, giving them an advantage. When a condo owner from downtown moves to a rural property in an unfamiliar area, then the information imbalance is even more significant. This problem can be exacerbated when the ‘city slicker’ uses their city Realtor friend who mostly has experience with condos and houses in the inner suburbs.
Where will the sellers live once they move out?
We may want to believe that the sellers have good intentions, but if living in that rural-exurb house is so desirable, why are they selling, and where will they live after they move out?
The property seller prefers to take their money and search for some other place to live rather than live through wave 2 of the pandemic in their current home. They prefer to sell the house now rather than wait until the market settles and the social distancing restrictions are lifted. Why?
Current rural-exurb buyer may be overpaying
It is possible that the Canadians currently moving to the country are doing it with their eyes open, and they don’t mind paying extra to avoid living in a small condo during wave two.
On the other hand, in some cases, the country folks may have duped the city slickers into overpaying for a property in the sticks.
