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COVID-19 infects Metro Vancouver real estate market

Cancelled open houses highlight trouble ahead for property sales in the local sector

As COVID-19 makes its way around the globe, it is also bulldozing its way though the economy, slowly infecting various industries. 

While airlines and event venues were the first to be poisoned, many are anxious about how the virus will affect other parts of the economy, including the real estate market – which made up 17.4% of B.C.’s GDP in 2018.

Earlier this month, Metro Vancouver real estate brokers cancelled all open houses. When houses aren’t shown they become more difficult to sell, and when houses aren’t selling the broader market suffers. 

While the outlook doesn’t look good, it is still too soon to know what impact COVID-19 will have on real estate. 

“We’re in early days still, and we’ll see how this all evolves,” said Brendon Ogmundson, chief economist at the BC Real EstateAssociation (BCREA). “It’s pretty clear that the next few months are going to be pretty rough.”

Before COVID-19 struck home, March was expected to be a strong month, according to Ogmundson, but that could change.

In its most recent analysis, the BCREA predicts a steep decline in home sales in the second quarter, followed by a slow recovery. Sales are not expected to reach pre-COVID 19 baseline expectations by the end of 2020. Housing prices, on the other hand, will likely experience only a modest temporary decline and should recover to baseline over the next year.  

The main reason home prices are expected to remain steady despite COVID-19 is that there isn’t a large enough supply for people to take advantage of low prices. 

“It works both ways. If people aren’t out there buying right now, they’re probably not listing either,” said Ogmundson. 

What usually drives real estate price down is a drop in sales activity coupled with a large increase in inventory, he said. People aren’t likely to be trying to get out of the real estate market at this time, so there is unlikely to be an increase in inventory. Even if demand falls off more than expected, it will take some time for that to be evident in real estate prices.

A slowdown in sales could also lead to pent up housing demand, Ogmundson said. This means that once fears surrounding COVID-19 have settled down, the housing market could come roaring back with a surge in sales and ultimately a spike in prices. 

While COVID-19 may not have a significant effect on housing prices, it is already making waves through the mortgage industry. 

The fear isn’t that lenders are going to stop lending, but that essential functions required to support lending will be damaged by the pandemic, said Taylor Little, CEO of Neighbourhood Holdings.

Not only are people avoiding open houses but appraisers are also staying home. Without needed appraisals, deals can’t be closed, and companies like Neighbourhood Holdings are put in a sort of realestate limbo, Little said. Delaying the closing of these real estatedeals will add to the economic stress already broadly being felt.

“How do you even complete a home refinance or purchase if an appraiser won’t even come into your house?” Little said.

The mortgage industry, including big banks and credit unions such as Vancity, are also suspending the need for borrowers to make mortgage payments. While at first glance this may appear as a negative for lenders, Little said it is beneficial. During difficult economic times, lenders are generally concerned about high debt delinquency; the deferral of mortgage payments will help prevent that. 

In response to the COVID-19 pandemic, the Bank of Canada has slashed interest rates to 0.75%. Usually, lower interest rates would help spur housing sales, but with everything else going on, Little said, it’s unknown whether demand will rise. 

While lower interest rates might not be enough of an incentive to persuade people to buy a home during the pandemic, it could prove to be critically important for mortgages holders. 

“If you’re a candidate to refinance your mortgage today, there’s no doubt [lower interest rates] are going to stimulate activity there,” Little said.

People looking to blend or extend mortgages will benefit from lower interest rates, and people who are looking to close real estatedeals will also get a better rate.•

Pandemic response

•Bank of Canada has lowered interest rates to 0.75%

•Big banks and credit unions have deferred mortgage payments

•Metro Vancouver real estate brokers have postponed open houses

•Feds have raised Canada Mortgage and Housing Corp. limits by $150 billion each to guarantee securities and 
ensure mortgages