Atypical trends lead to a busy year despite uncertainties
Who could have imagined the changes we’ve all experienced in the past half year?
Around the globe, the coronavirus has infected hundreds of thousands of people; economies are faltering; our normal way of life has transformed.
Here in BC, we’re still all pulling together to keep flattening that curve – even though our initial excellent response has been tested of late. Four months into the restart, the economy is improving slowly, yet many sectors remain teetering on the brink of financial peril.
So why is BC’s housing market strong and busy?
A recent report by British Columbia Real Estate Association’s (BCREA) chief economist, Brendon Ogmundson, cites several reasons for this unprecedented trend.
Not your standard recession…
“In a typical recession, housing sales decline as job losses and heightened uncertainty prompt potential buyers to pull back from the market. At the same time, the supply of listings accumulates as some households are forced to sell due to rising unemployment and falling incomes,” says Ogmundson. “The COVID-19 recession, however, has been anything but typical.”
He notes past recessions have seen provincial home sales post an initial steep decline before bouncing back with the wider economy over more than a year’s time. In contrast, the COVID-19 recession has seen “a remarkably swift rebound” to multi-year highs.
Part of this discrepancy could be due to low-wage sectors of the labour force feeling much of the impact, particularly the hospitality and trade industries. Past recessions in BC have seen relatively uniform job losses across all sectors.
Another unusual trend is a rise in household savings rates and disposable income during the pandemic. Vacationing, shopping and dining out have all taken a hit resulting in decreased spending and increased savings.
Quick response from government and financial institutions
It seems the 2008-09 recession taught policymakers to respond swiftly. Through the rapid implementation of government programs, such as the Canadian Emergency Response Benefit (CERB), the feds helped temper financial vulnerability. The Bank of Canada lowered its overnight rates almost, well, overnight. Mortgage rates are at record lows. These moves, in conjunction with pent-up demand due to a couple of months of isolation, saw impressive real estate figures as summer started.
Not enough supply for demand
Social distancing measures caused the total supply of active listings to decline, particularly at the start of the pandemic. Even though the sector adapted without delay by introducing virtual tours and other solutions to ensure safe transactions, supply did not accumulate as in past recessions. The six-month mortgage deferral program enacted by Canada Mortgage and Housing Corporation (CMHC) also likely dampened potential supply.
The combination of an under-supplied market and pent-up demand has produced upward pressure on housing prices across the country.
So, what’s the forecast?
Predicting the future often involves looking at the past. But in a world that hasn’t seen anything like this in modern times, there’s nothing to compare it against. That’s why Ogmundson shies away from any specific projections.
“Significant uncertainty remains, including the end or transition of key government supports and mortgage deferral programs, and a concerning rise in provincial COVID-19 cases,” says Ogmundson.
“However, the unexpectedly swift rebound in the market means that BC home sales will almost certainly finish 2020 higher than 2019. Moreover, the extended low-interest-rate environment combined with an expected strong recovery in the BC economy points to a continuation of strong demand in 2021.”