It’s been about six weeks of the COVID effect on the housing market. How bad is it? And what do the most recent numbers tell us about what’s in store?
No one is watching MLS data more closely than Brendon Ogmundson, Chief Economist at the British Columbia Real Estate Association (BCREA). On April 20, BCREA released preliminary projections on how COVID is affecting the market. We caught up with him on that same day .. here is our Q & A.
Q: As of April 17th, FVREB’s month-to-date sales are down 38% compared to the same time period last year and new listings are down by 57%. Is it possible to project what these numbers mean for our market over the next month or two?
A: We expect home sales in the Fraser Valley will decline approximately 30-40 per cent year-over-year in April 2020 and remain lower than normal over the summer as households and the real estate sector adhere to physical distancing.
Q: How long do you anticipate the downturn will last?
A: As I explained in our April Market Intelligence Report, we are in the very early stages of the 2020 recession. Since 1980, the average Canadian recession has lasted between 8 and 25 months. That said, as BC gradually lifts measures to mitigate the spread of COVID and re-opens the economy, we expect that pent-up demand and low interest rates will entice buyers back into the market, which will result in a boost in sales as early as 2021.
Q: You’re suggesting that a recovery is potentially a long way off. What will be the impact on home prices?
A: We look to prior recessions to help us gauge how we will recover from this one. As with previous recessions, we can expect an initial decline in prices, but like sales we expect that prices will spring back.
Historically, the combination of pent-up demand and the Bank of Canada maintaining low interest rates are often powerful enough that home prices finish higher the year following the initial decline.
Q: We are currently seeing a greater reduction in supply than we are sales. What effect does a lack of inventory have on prices?
A: Crucially, the impact on prices is largely determined by the reaction of supply. If the inventory of listings accumulates significantly, and particularly if that inventory represents foreclosures or desperation selling by those impacted by rising unemployment, then prices will be more severely impacted. However, given the unusual nature of COVID-19, listings are likely to decline for at least the first month due to physical distancing. If listings fail to accumulate as in past recessions, the impact on prices will be much more muted.
Q: How can Realtors help guide and advise their clients during this downturn?
A: The one thing all recessions have in common is that they end; and we know from history that the housing market bounces back with vigor following recessions. Realtors can help their clients by staying on top of the rapidly changing economic environment. In addition to monthly statistics reporting and quarterly forecasts, the BCREA Economics team is here to provide resources for Realtors and their clients such as our monthly Economic Nowcast that will help provide insights into how the economy is currently performing and when it may be turning the corner as well as our weekly Economic Dashboard showing how the economy and the housing market are being impacted by COVID-19.
So in summary …
While a recession in Canada and BC is at this point unavoidable, the one thing all recessions have in common is that they end. We know from history that the housing market bounces back with vigor following recessions, usually aided by a steep drop in interest rates. We expect this time around will be no different. Given historically low interest rates and pent-up demand, we expect the impact of this recession will evolve as in the past, with home sales and prices recovering into 2021.
Read the very informative BCREA report and view the accompanying charts using this link …