Potential Impact of COVID-19 on the Provincial Housing Market
Buyers are finding it hard to go into homes while Sellers in British Columbia (BC) are taking them off the market as they quarantine. Many Real Estate Agents in BC are adapting by learning new tools, such as virtual tours and paperless transactions, while implementing safeguards for Clients and themselves. There is still plenty of interest in both selling and buying homes, but also a lot of uncertainty about when to hand over the keys or close on a new home.
The risk of the COVID-19 Pandemic is at various levels across Canada. Governments (Provincial and Federal) are in the process of relaxing policies and measures, currently in place to prevent the spread through measures like social isolation, distancing and quarantine. Millions of Canadians in the non-essential workforce have been working from home as well as abstaining from visiting businesses as well as other public places.
Government Authorities consider the housing industry in BC an essential service. Sellers, Home Buyers, and Real Estate Agents are navigating a contactless and unique world in a different market characterized by uncertainties and unknowns.
Housing Market Is Facing Uncertainty
Experts were expecting a hot spring market. These expectations fizzled with concerns of the pandemic as well as the policies and rules that were put into place to combat the Virus. This placed Housing markets across Canada in limbo as home buyers and sellers were trying to understand the full economic impact of these new policies. The COVID-19 Pandemic struck just as the province's real estate markets were gradually recovering from a 2-year slowdown, according to the British Columbia Real Estate Association (BCREA).
Considering the impact of COVID-19 on the national, provincial and local economy, may remain muted in the upcoming months. Economists, financial experts, and elected leaders are of the view that the COVID-19 Pandemic will likely trigger economic activity in the province to slow, which may affect the real estate market as well.
Interest Rates
The Bank of Canada recently reduced the overnight rate to ease the negative impact of COVID 19 on the Canadian economy. The large Canadian banks also reduced their rates. They have lowered their prime rates, which impact borrowing rates for both variable mortgages as well as credit lines, from 3.95% to 2.45% at the start of the month. Banks also have eliminated discounts off prime and variable mortgages as these interest rates have dropped.
For example, if you are a qualified borrower, you could get a rate of prime minus 1% at the start of the month from HSBC Canada. Keep in mind that Canada’s large domestic lenders are also providing “prime minus” deals.
Home Prices and Sales: What You Can Expect
So far this spring, home sales have been declining due to COVID-19. It is predicted the economy will recover in the second half of the year, according to the latest projection from Brendon Ogmundson Chief Economist at the British Columbia Real Estate Association.
If you are a seller who is looking to downsize or cash out, you should list your property right away. Wondering why? First of all, momentum is on your side. There is also limited housing inventory in the market. As a result, Sellers of quality homes can get top dollar, and should not miss this opportunity. It is worth noting that the demand is high right now, but you should not be complacent and assume that it will last. If you get a reasonable price, you should take it.
What Sellers Should Know
The inter connectivity of the financial markets make it crucial to bear in mind that a stock market decline will affect the BC housing market as well. For instance, many new buyers resort to their parents to help them with their down payment. However, after witnessing a considerable drop in their investment portfolio, many parents will not be able to or be less inclined to help their children finance a down payment on their home.
An additional factor to consider is the potential loss of income that the Pandemic may cause. Many lenders in the province may be reluctant to lend to applicants who work in areas affected by this pandemic, like the travel and oil and gas industries.
Agents Need To Be Creative
There is no doubt that one of the most evident challenges for many real estate agents in BC is showing homes listed for sale to potential buyers in the age of social distancing. This is because everyone is now wary of public health risks and wants to minimize any in-person contact. Many brokerages are now enforcing new company guidelines and rules that prioritize virtual interactions. Agents now must leverage technology in order to offer a high level of service to their clients, in lieu of the in-person touch.
Chinese Imports and Supply Chain
Although the flow of goods from China may taper in the short term due to the shutdown of many Chinese factories, this could pose a minimal risk to demand for industrial space in BC. Industrial vacancy rates in Western Canada port markets remain exceptionally low and only face modest development risk.
It is worth noting that some firms may postpone commitments, especially for large space blocks at some major warehouse facilities, while they cautiously monitor and assess the economic outlook, awaiting additional information and data on the supply chain outlook.
Real Estate Associations in Canada Call for End to Open Houses
Keep in mind that two of Canada’s major real estate associations have also called for an end to open houses due to the COVID-19 pandemic. These authorities are instructing all realtors in the country to stop holding open houses during the crisis.
The “State of Emergency” for the province has been extended. It is currently set to expire at the end of the day, May 26th 2020.
If you have any questions, or require assistance; please reach out to me, Peter Forai at 604.961.3895 or pforai@kw.com. Stay safe and see you soon!