Time to buy? What the pandemic means for Vancouver's real estate market
Mark Ting, On the Coast's finance columnist, on what lies ahead for buyers and sellers amid COVID-19
According to April's real estate numbers, sales activity and housing inventory in Greater Vancouver dropped 39 per cent and 34 per cent respectively.
Prices remained flat as buyers balked at the thought of moving during a pandemic while sellers were hesitant to open their homes for viewings, resulting in significant declines in both supply and demand.
Overall, the market appears to be balanced. Bidding wars are still occurring and it remains a sellers' market for condos under $700,000 and detached homes around $1.6 million, whereas the market for more expensive homes tends to favour buyers.
So far, there hasn't been a lot of panic or forced selling, but I believe that could change in the fall.
When trying to forecast where the market is heading, there are two variables that I will be closely monitoring — the post COVID-19 employment numbers and the expansion or introduction of new government programs created to combat the financial effects of the pandemic.
A low unemployment rate does wonders for real estate valuations as it is an indicator that the economy is functioning well. Strong economies attract new investments, businesses, immigrants, temporary workers, international students, refugees — all of which increases demand for housing and results in higher rents and house prices.
A weak economy does the opposite. People will not move here unless they think they can find a job, while recently laid off workers with few ties to Vancouver may leave. In other words, we see less demand and more supply.
According to Moody's analytics, for every one per cent increase in unemployment, house prices typically drop about 4 per cent. Based on this ratio, if our unemployment rate were to double from pre-COVID-19 levels, home values would drop by roughly 20 per cent.
The main reason house prices are not currently dropping is due to government intervention. The various levels of government stepped in with a series of temporary programs to replace or subsidize the income of those affected by COVID-19. They also arranged for many of our expenses to be deferred — such as utility bills, taxes and mortgage payments. All these programs have bought struggling homeowners some time, and have taken the pressure off to sell their homes.
But what happens when the safety nets disappear? That is when the ill-prepared or vulnerable homeowners will be forced to sell. Many of the government programs are expected to wind down in the summer and fall, and we may see a spike in new listings — a great time for buyers but terrible for sellers.
If I had plans to sell my home sometime in 2020 or early 2021, I would be listing my home sooner rather than later. While I'm not expecting a 20 per cent drop in value over the short term, it also wouldn't surprise me if it did happen. I also wouldn't be surprised if the government bailed out the housing market and valuations returned to all time highs. The B.C. government's tax base is heavily reliant on the construction and housing industries, so they can't afford to have housing valuations drop too low.
While I'm very cautious on real estate over the short term, I still think it's a solid long-term investment.
My advice to prospective buyers, if valuations drop by 15 to 30 per cent in 2020 or early 2021, consider leaving the sidelines as it could be the buying opportunity that many of you have been waiting for.
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