Market Insight

For this month, I decided to share BCREA’s Chief Economist Brendon Ogmundson‘s point of view to some very common questions:

1. What long-term impact will COVID-19 have on our economy and housing market?

For the first time in over a decade, the BC economy is in a recession. But this recession is unprecedented in that it didn’t happen due to collective poor business decisions, rapidly rising interest rates, bad loans, or misadventures in financial engineering. Rather, the economy has been purposely halted for the greater good. The implication being that, the shorter the duration of this unusual period, the more likely it is that demand can more readily return to where it was pre-COVID-19 and the outsized employment losses experienced this year can be reversed.
The ultimate impact of COVID-19 will depend on how quickly economic activity can return to its pre-COVID-19 level. The speed of  the recovery will depend on the level of comfort people feel in getting back to work, going to the store, or catching a movie with friends, a variable that’s ultimately unforecastable. As the economy “re-opens” and as the industry along with buyers and sellers adapt and innovate, we expect home sales will rebound, aided by record low mortgage rates and pent-up demand. While the way we do those things in a post-COVID world will certainly change, I’m optimistic the economy will bounce back strong in 2021, with the housing market leading the way.

2. What home price changes and other long-term trends do you expect to see?

The impact of the current pandemic and associated recession on home prices is largely determined by the reaction of supply. If the inventory of listings accumulates significantly, and particularly if that inventory represents foreclosures or motivated selling by those affected by rising unemployment, then prices will be more severely impacted.
However, given the unusual nature of COVID-19, the supply of listings for sale has declined for at least the first month of the pandemic. It’s likely that even as social distancing measures ease and normal recession dynamics take over, the total supply of homes for sale will peak at a lower level than would be expected given the underlying economic turmoil.
A muted rise in for-sale inventory along with plummeting interest rates and pent-up demand may translate to home prices remaining relatively firm in 2020. In fact, this is a scenario we often see during recessions. Look back on the 2008/2009 financial crisis and recession, truly a frenetic and frightening time. While benchmark home prices in Vancouver moderated slightly, by early 2009 they were rising once again, leading to a double-digit average increase over the next two years. While a repeat of the post-financial crisis prices growth isn’t our baseline forecast, it’s illustrative of how Vancouver home prices have fared, even under an otherwise extremely challenging economic climate.