Sharp drop in B.C. home sales should be followed by steady recovery: BCREA
Ban on open houses foreshadows short- to mid-term trouble for property sales, as COVID-19 infects all aspects of the market
As COVID-19 makes its way around the globe, it is also bulldozing its way through the economy. While airlines and event venues were the first to be infected, many are anxious about how the virus will affect other parts of the economy, including the real estate market – which made up 17.4 per cent of B.C.’s GDP in 2018.
Earlier this month, B.C. real estate brokers cancelled all open houses. When houses aren’t shown they become more difficult to sell, and when houses aren’t selling the broader market suffers. While the outlook doesn’t look good, it is still too soon to know what impact COVID-19 will have on real estate.
“We’re in early days still, and we’ll see how this all evolves,” said Brendon Ogmundson, chief economist at the B.C. Real Estate Association (BCREA). “It’s pretty clear that the next few months are going to be pretty rough.” Before COVID-19 struck home, March was a strong month for sales, according to Ogmundson, but that could change.
Steep decline, then rebound
In its most recent analysis, the BCREA predicts a steep decline in home sales in the second quarter, followed by a slow recovery. Sales are not expected to reach pre-COVID 19 baseline expectations by the end of 2020. Housing prices, on the other hand, will likely experience only a modest temporary decline and should recover to baseline over the next year. The main reason home prices are expected to remain steady despite COVID-19 is that there isn’t a large enough supply for people to take advantage of low prices. “It works both ways. If people aren’t out there buying right now, they’re probably not listing either,” said Ogmundson.
What usually drives real estate price down is a drop in sales activity coupled with a large increase in inventory, he said. People aren’t likely to be trying to get out of the real estate market at this time, so there is unlikely to be an increase in inventory. Even if demand falls off more than expected, it will take some time for that to be evident in real estate prices.
A slowdown in sales could also lead to pent-up housing demand, Ogmundson said. This means that once fears surrounding COVID-19 have settled down, the housing market could come back with a surge in sales and ultimately a spike in prices.
Mortgage industry impact
While COVID-19 may not have a significant effect on housing prices, it is already making waves through the mortgage industry. The fear isn’t that lenders are going to stop lending, but that essential functions required to support lending will be damaged by the pandemic, said Taylor Little, CEO of Neighbourhood Holdings.
Not only are people avoiding open houses but appraisers are also staying home. Without needed appraisals, deals can’t be closed, and companies like Neighbourhood Holdings are put in a sort of real estate limbo, Little said. Delaying the closing of these real estate deals will add to the economic stress already broadly being felt. “How do you even complete a home refinance or purchase if an appraiser won’t even come into your house?” Little said. The mortgage industry, including big banks and credit unions such as Vancity, are also suspending the need for borrowers to make mortgage payments for up to six months.
While at first glance this may appear as a negative for lenders, Little said it is beneficial. During difficult economic times, lenders are generally concerned about high debt delinquency; the deferral of mortgage payments will help prevent that.