The housing market in British Columbia started 2020 with a slow climb out of the weak conditions seen in much of the previous year.
Hopes of stronger economic activity along with changes to the mortgage stress test for insured (and potentially uninsured) mortgages, were helping to boost homebuyer confidence.
But then came COVID-19.
The potential impact on the province’s housing market has been laid out by the economics team of British Columbia Real Estate Board in a new market intelligence report.
Its baseline scenario before the coronavirus outbreak was for the provincial GDP to grow 2.4%, the average 5-year mortgage rate to be 2.95%, and for a change to the stress test rate.
But four new scenarios consider the potential impact of the virus on the economy – reducing growth to 1% at best and minus 1.5% at worst – and for no change to the stress test in three of the scenarios.
“Unsurprisingly, the results of our simulations show a steep decline in home sales in the second quarter of this year as economic activity becomes eerily quiet,” the report stated.
But then, activity should rebound slowly while remaining below the baseline assuming the outbreak is resolved. If the recession is deeper though, sales could slump 20% below the baseline estimate.
Prices are set to take a hit too but are again expected to recover. The curve of recovery will again depend on which scenario occurs.
The outcomes for both sales and prices are more favourable if the mortgage stress test rate is changed and cuts to interest rates are reflected in the qualifying rate.