Coronavirus has had a profound impact around the world, affecting various industries and the global economy in general. Vancouver’s real estate industry is feeling the effects of the pandemic too, and many are wondering what the lasting impact will be.
Recently, Metro Vancouver real estate brokers decided to cancel all open houses as part of a community-wide effort to help slow and prevent the spread of the virus. This will likely have an impact on buying and selling homes in Vancouver, as it can be difficult to sell properties when it isn’t possible to show them in person to potential buyers.
In an interview with biv.com, Brendon Ogmundson, chief economist at the BC Real Estate Association (BCREA), said it is still too soon to know what impact the pandemic will have on real estate in Vancouver and surrounding areas:
“We’re in early days still, and we’ll see how this all evolves. It’s pretty clear that the next few months are going to be pretty rough.”
Vancouver Home Prices and Sales
March was expected to be a strong month for the Vancouver housing industry before the coronavirus pandemic emerged. And according to the most recent BCREA analysis, there could be a significant decline in home sales in the second quarter and a slow recovery in later quarters.
It’s predicted that sales will not reach pre-coronavirus baseline expectations by the end of the year. However, housing prices in Vancouver will likely only see a small temporary decline and, over the next year, should return to the baseline.
Overall, home prices are likely to remain steady despite the pandemic because there isn’t a large enough housing supply for people to take advantage of lower prices. As Ogmundson explained:
“It works both ways. If people aren’t out there buying right now, they’re probably not listing either.”
According to Ogmundson, real estate prices are usually driven down by a drop in sales activity, accompanied by a significant increase in inventory. Since it’s unlikely that Vancouverites will try to sell their homes in the next little while, an increase in inventory is not foreseeable. It would take time for real estate prices to reflect any unexpected decrease in demand.
A slowdown in sales could lead to reduced housing demand. But once coronavirus concerns calm down, the housing market could potentially see a rise in sales and a boost in prices.
The Impact on Mortgages
Although the pandemic hasn’t had such a significant effect on Vancouver housing prices yet, it has brought changes to the mortgage industry. There are concerns about whether the essential functions required to support lending will be severely affected.
Appraisers are staying home and, without required appraisals, deals like home refinancing or purchasing can’t be closed. This puts homeowners and lending companies in a difficult position.
In response to the potential challenges that come with the pandemic, the mortgage industry, including big banks and credit unions, are allowing borrowers to postpone making mortgage payments temporarily.
Although this might seem like a risky move for lenders, it’s actually beneficial, since difficult economic times can lead to high debt delinquency. By deferring mortgage payments for borrowers, lenders are hoping to prevent that.
The Bank of Canada has also acted in response to the pandemic, making two unscheduled cuts to its benchmark interest rate, lowering it to 0.25%. The most recent cut was made over a week ago. According to the bank, the rate cut is supposed to make lending cheaper, which in turn should encourage people to spend, borrow and invest, helping the economy during these difficult times.
Although lower interest rates would typically help drive housing sales, the pandemic has proven to be a unique situation, and it’s difficult to know whether housing demand in Vancouver will rise.
Even if lower interest rates aren’t enough to persuade people to buy a home, they are beneficial for mortgage holders. Those who are looking to refinance, blend or extend mortgages can take advantage of the better rates.
Experts believe it’s too soon to tell what impact the coronavirus pandemic will have on Vancouver real estate. Even so, new measures are being put in place to help stabilize the market. In a situation with plenty of unknowns, it remains to be seen how things will develop.