In the past 40 years, the Canadian economy has had three recessions, each of them different in cause, depth, and duration. The 2020 COVID-19 recession is said to be deep, but will not last long when compared to past recessions. The one glaring similarity throughout these recessions is how the BC housing market has both endured and recovered successfully.
According to the current forecast, the Canadian economy is said to contract approximately by 4% in the first quarter of 2020, followed by a startling 21% decline in the second quarter on a seasonally adjusted annualized basis. The BC economy indicates that provincial GDP growth will turn negative in February and the contraction of the economy will potentially reach double digits by April, due to the shutdown in economic activity.
How has COVID-19 and past recessions affected the BC Housing Market?
We know that during the 1981/82 recession, the BC economy contracted by 6.4%, and the unemployment rate jumped nearly 10 points in the worst recession on record for British Columbia. During past recessions, the BC home sales showed a steep decline before bouncing back. The year following the start of a recession, homes sales recovered significantly rising 24 to 46%, largely as a result of pent-up demand and low-interest rates.
In April 2020, the COVID-19 recession is expected to cause approximately a 30-40% year-over-year decline in home sales. The housing market will remain depressed over the summer as real estate and households follow the social distancing rules. As the measures to mitigate COVID-19 are slowly lifted, the pent-up demand and low-interest rates will cause buyers back into the market. Home sales are predicted to hit an 85,000-unit annual pace by early 2021.
The impact on prices is largely determined by the reaction of supply. If there is a significant accumulation of listings, particularly representing foreclosures or desperation selling by those impacted by rising unemployment, then prices will be more severely impacted.