COVID-19 has had an expected effect on Canadian real estate, which saw its worst April in 36 years, but prices in Vancouver haven’t dropped.
As all market sectors hold their collective breath for the next development in the COVID-19 recession, looking back is proving the best way to see what’s ahead for Vancouver housing. Although in most cases a recession is triggered by an economic upset rather than a health related one, the market’s home buying and property investment response to the fluctuations is still more or less a function of the supply and demand curve.
To get an idea of current property prices in the Greater Vancouver area, check our listings page.
How have British Columbia housing prices historically responded to recession?
The BC housing market has historically faced recessions of varying scales: 1981/82 for 16 months; 1990/92 for 25 months; and most recently, 2008/09 for 8 months. A BC Real Estate Association (BCREA) report studied the BC housing market’s response to these events to determine the pattern of market response, with the main factors being their duration, drop in GDP, and rise of unemployment.
According to the report: “Since 1980, the average Canadian recession has lasted between 8 and 25 months and is characterized by a contraction of about 4% in real GDP and a jump in the unemployment rate of 4.5%,” with 1981/82 being the most hard hitting, and the following recessions showing less and less of a dent. This is critical information for both homeownership and real estate investment.
For more on the study you can view the BCREA report here.
Each occasion featured a rapid drop in the early months, followed by a flatting at the low end for a period of uncertainty, and then a gradual firm recovery of activity by up to 46 percent. While we’ve all heard the cliche that past performance is no guarantee of future results (especially when it comes to real estate property investment), we can still assess this pattern and apply it to the unique circumstances of today’s COVID-19 climate.
What’s different in the COVID-19 housing and real estate investment market?
With the historic precedents in mind, we can now consider the specifics of the COVID-19 dilemma, with uncertainty being the main point.
In the financial uncertainties of previous recessions our daily lives, and the socioeconomic infrastructure that supports them, were still intact, and the crisis was confined to the dollars and cents that fuel the apparatus. The current situation is posing a more fundamental challenge. Without a vaccine to end the threat, a new infrastructure is needed, so we remain on uncertain footing.
Countless changes will have to be implemented to kickstart a COVID-19-centric infrastructure. In the realm of presales, homeownership and real estate property investment, there are two major factors at play. The sustained travel ban has hampered foreign investment, and the moratorium on property tours means that even those within Greater Vancouver can’t move forward with a property investment.
How long will these measures last? To what extent will they be relaxed, if they are at all?
At the same time, the housing market was showing good upward momentum in January/February 2020, while March has seen an expected, but significant, downturn. This is strong evidence of powerful forces at play.
What could this mean for presales in Vancouver?
The question for real estate investors and homeowners with every recession has always been “Is this it? Will there be a crash?” Well, the most researched indicators are the last three major events over a 40 year period.
As it is right now, a delay in the annual trends is a reasonable expectation. With millennials now coming to home-ownership and property investment age, there’s even more upward pressure on sales to come in the foreseeable future and counter the downward pressures COVID-19 has inflicted.
Buying a property at presale is complex. However, properties secured as presale in the past year or going forward may actually benefit from the current situation, given that the last recessions eventually stabilized, each more quickly than the last. While we’re in uncertain waters, the lack of a drop in Vancouver house prices currently for sale could be a good sign.
As the spread of COVID-19 has already slowed within BC and measures are in place to get things moving again safely, people who move into presale properties in a year’s time could find that after a brief dip, the market has stabilized, and their property has not depreciated in value at all.
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