The volume of home sales in British Columbia will take a considerable hit as a result of the deep recession due to the COVID-19 pandemic.
A new report by the BC Real Estate Association (BCREA) anticipates home sales will fall by about 30% to 40% in April 2020 compared to the same period last year. Sale volumes will remain depressed over the summer, with households and the real estate industry practicing physical distancing and self-isolation.
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The Canadian economy is estimated to have contracted by about 4% during the first quarter of 2020, and it is forecast to see an extraordinary shrinkage of 21% in the second quarter.
Within BC, provincial real GDP growth is expected to have turned negative starting in February, marking the start of the pandemic-induced recession. With the mass business closures and layoffs, the continued contraction of the economy may reach double digits by April.
While they expect this will be a deep recession, the duration could be shorter than previous recessions.
Based on BCREA’s analysis of the historical data of the last three recessions over the past 40 years, there are considerable similarities in how the local housing market has endured and recovered from the recessions.
The average Canadian recession has lasted between eight 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%.
In the year after the start of a recession, home sales have seen major recoveries, rising 24% to 46% due to pent-up demand and low interest rates.
The same can be expected after the COVID-19 recession, when the economy begins to make its rebound from the gradual lifting of health safety-related closures and restrictions.
“The COVID-19 recession is unprecedented in that it is not man-made. It did not evolve due to collective poor business decisions, bad loans, or misadventures in financial engineering. Rather, the economy has been purposely halted for the greater good,” reads the report.
“The implication being that, the shorter the duration of this unusual period, the more likely it is that demand can snap back to near where it was pre-COVID-19.”
With that said, the longer the duration of the recession due to restrictions, the more likely that jobs will not return and businesses will fail. The post-coronavirus recovery will be far slower as a result.
Currently, home sales and prices are expected to recover starting in early 2021, with home sale volumes returning to a baseline of 85,000 units per year.
“Crucially, the impact on prices is largely determined by the reaction of supply. If the inventory of listings accumulates significantly, and particularly if that inventory represents foreclosures or desperation selling by those impacted by rising unemployment, then prices will be more severely impacted,” continues the report.
“Our COVID-19 model assumes that listings accumulate as in past recessions. However, given the unusual nature of COVID-19, listings are likely to decline for at least the first month due to social distancing before normal recession dynamics take over and listings begin to rise.”