A new report analyzing BC’s economic contraction in 2020 as a result of COVID-19 includes a potential early forecast for the housing market.
Central 1 Credit Union expects home sale volumes will plummet through the middle of the year, following the trajectory of the rest of the economy. There could be a 30% decline in home sale volumes by the end of the year.
A similar rate of decline is expected for housing starts, with new residential construction forecast to fall from nearly 45,000 units in 2019 to 31,400 units in 2020.
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But unlike past recessions, as the current economic challenges are due to a government shutdown of the economy, not the market forces experienced in 2008, the economic rebound from COVID-19 is anticipated to be relatively strong and quick after 2020’s steep drop.
Residential construction specifically is expected to account for $8.23 billion in provincial GDP, representing a drop of 11.4% over 2019’s $9.29 billion.
It will take two years for GDP levels in this sector to return to pre-pandemic levels; pent-up demand will cause residential construction GDP to rise by 6.2% to $8.74 billion in 2021 and 6.7% to $9.33 billion in 2022, before beginning to level off at 2.3% to $9.54 billion in 2023.
“Home sales will plunge through mid-year with the rest of the economy. Buyers will be hesitant to engage, while sellers may also be uncomfortable to open their homes for listing,” reads the report, adding that home prices should see little change due to a reduction in supply from the cut to listings.
Furthermore, analysts note that short-term pricing changes will not be an indicator of the post-pandemic housing conditions.
“Supply side constraints could delay construction and developers may take a wait and see attitude to construction in light of the pandemic,” continues the report.
Aside from the economic uncertainty arising from high unemployment and lower spending, population growth will be another factor for the local housing market. With travel restrictions in place, BC is anticipated to see a 0.4% population growth in 2020, the lowest rate in decades. This is down from 1.4% in 2019, but rebounds of 1.1% and 0.9% are expected in 2021 and 2022, respectively.
Provincial GDP generated by the finance, insurance, and real estate sector is projected to fall by 8.3%, following 2019’s growth of 1.8%. Rebounds of 4.9% in 2021 and 3.4% in 2022 are expected.
GDP from owner-occupied housing will also fall to 1.3% this year, after increasing by 3.6% in 2019. It will rise to 3.3% in 2021 and 3% in 2022.
The overall construction labour market in BC will shrink by 5.8% in 2020, following 2019’s modest drop of 0.8%. Employment in this industry will increase by 3.3% in 2021 and 2.6% in 2022.
For provincial GDP from non-residential construction, there will be a drop of 6.3% to $2.44 billion in 2020. This is down from a growth of 12.6% to $2.6 billion in 2019. Rebounds are expected for the years ahead, with increases of 4.1% to $2.44 billion in 2021, 4.7% to $2.65 billion in 2022, and 7.3% to $2.85 billion in 2023.