British Columbia·Opinion

Will COVID-19 affect the spring real estate market?

CBC On the Coast's finance columnist Mark Ting on what you should do if you're looking to buy — or sell.

Mark Ting, On the Coast's finance columnist, on what you should do if you're looking to buy — or sell

It's important to keep in mind that, because all financial markets are interconnected, a stock market drop should affect the housing market, says finance columnist Mark Ting. (Ben Nelms/CBC)

Unlike the stock market, COVID-19 hasn't affected the Lower Mainland real estate market — at least, not in a negative way.

A friend of mine just closed on an apartment for $500,000 where she had to deal with a bidding war and ended up paying over asking. Open houses are still well-attended and quality properties are being snapped up quickly. Even detached homes at higher price points are starting to move.  

Low supply and high demand have pushed up prices — particularly in the case of condos which are selling at all-time highs.  

To cushion the economic blow caused by COVID-19, central banks around the world have cut interest rates. Anyone with an existing variable mortgage, or someone looking to get one, can expect their borrowing costs to decrease. The Bank of Canada cut rates by a full percentage point since the beginning of March.  

We are also seeing investors flee the stock market and park their money in investment grade bonds. A result of this flight to safety is that fixed-term mortgage rates are dropping. Lower mortgage rates increase the amount a home buyer can borrow, which pushes up prices as borrowers are able to make higher offers. 

We also cannot forget about the mortgage stress test. On Feb. 18, the federal government announced that the hurdle rate of the stress test would be lowered effective April 6.  In anticipation of this change, many buyers re-entered the housing market, increasing demand on a real estate market with limited inventory.  However, as of last Friday, the Department of Finance announced that changes to the stress test have been put on hold. 

Buyers beware

All these factors are fuelling the housing market and not even COVID-19 appears to be able to slow it down — yet.   

It was just a month ago when stock markets were at an all-time high, largely due to the fear of missing out, whereas today it's the opposite: many people are panic selling.

The same could happen, but to a lesser degree, with real estate, as buying psychology is fickle.

It's important to also keep in mind that, since all financial markets are interconnected, a stock market drop should affect the housing market. For example, many new buyers turn to the bank of mom and dad to help with their down payment. However, after experiencing a drop in their investment portfolio many parents will be less inclined, or no longer able, to help their children fund a down payment.  

Another important factor to consider is the potential loss of income that COVID-19 may cause. Some lenders might be hesitant to lend to applicants working in areas affected by the pandemic such as the travel or oil and gas industries.  

Selling? List properties right away

All these variables can affect demand.

If I were a buyer, I would be cautious. Don't underestimate COVID-19's negative impacts on the economy, jobs and buyers' sentiment and avoid overstretching your budget — something that tends to happen when buying in a seller's market.

My advice to sellers who are looking to cash out or downsize is to list their properties right away. Momentum is on your side and there is limited inventory, so sellers of quality homes are getting top dollar. The demand is currently high, but I wouldn't be complacent and assume that it will last. If offered a reasonable price, I would take it.   

If you don't need to sell, I wouldn't and I'm not. I still think housing in B.C. is a great long-term investment.

If you have a COVID-19-related story we should pursue that affects British Columbians, please email us at impact@cbc.ca

Corrections

  • A previous version of this story did not contain information about the federal Department of Finance's announcement on March 13 to put planned changes to the mortgage stress test on hold.
    Mar 15, 2020 2:53 PM PT

About the Author

Mark Ting is a partner with Foundation Wealth, where he helps clients reach their financial goals. He can also be heard every Thursday at 4:50 p.m. on CBC radio as On the Coast’s guide to personal finance. @MarkTingCFP mark.ting@foundationwealth.ca