A new report issued by the British Columbia Real Estate Association (BCREA) in forecasting a slump in the province’s home sales and prices due to the COVID-19 pandemic that will last into early summer, to be followed by a turnaround with increased transactions and more vibrant pricing into the late summer.
The report, titled “Sketching Out the Potential Impact of COVID-19 on the BC Housing Market,” stressed that the forecast is contingent on the great unknown of when and how the pandemic will be resolved. The forecast was based on four economic models under four scenarios, with varying degrees of encouraging results.
“All four scenarios predicted home sales in the province would drop in the spring and early summer,” the report stated. “The market would then likely rebound in the second half of the year ‘contingent on the outbreak resolving.’ However, only one of the scenarios found that home sales in the province would recover to a point of activity higher than if there had been no pandemic, with the other three forecasting a more muted recovery.”
The report admitted home sales could “remain depressed for the remainder of the year, falling about 20 per cent below baseline” in the event of deep recession, adding that in one of BCREA’s four scenarios the “fall in interest rates is passed through to the qualifying rate, home sales rise above baseline after an initial steep drop. As for home prices, the growth slowdown and associated decline in transactions will likely cause a temporary but modest swoon in home prices, which are then expected to recover to baseline over the next year as growth recovers.”
Furthermore, the report highlighted that BCREA’s simulations “show that a much lower qualifying rate would lead to home prices in some BC markets ending the year higher than our pre-COVID-19 baseline. This result is likely why the federal government has opted to postpone the change. However, given the uncertainty surrounding the outlook, this may ultimately be a mistake. If the growth outlook deteriorates, the housing market may need a lower qualifying rate to fully recover.”
As for today, the BCREA observed that some strategies need to be pursued to help many Canadians who are struggling to cover their housing costs.
“There is still a need to address lost income for those who cannot afford to practice social distancing by staying home from work and for those who have to make monthly rent payments and can’t take advantage of payment deferrals,” the report continued. “For those individuals and families, cash is king. That means these households will need government cash transfers to meet their financial priorities during this time, and we hope this will be part of the yet-to-be-announced stimulus package from the Canadian government.”