The COVID-19 outbreak has caused a steep decline in interest rates, however, it is uncertain as to how severe the impact will be on economic activity. Considering the importance of tourism and our trade links with China, the magnitude of the impact is expected to be higher in BC. In addition, the Canadian economy also saw the collapse of oil prices and this makes the probability of a recession in Canada that much higher.
An unfortunate byproduct of recession is the loss of jobs and incomes, which might put financially vulnerable families in a tight spot. The CMHC announced it will be working with lenders to defer mortgage payments by up to six months if needed, which should stem potential mortgage defaults and foreclosures. For other families that cannot afford to practice social-distancing and can't take advantage of payment deferrals, are expected to find support through the yet-to-be-announced stimulus package from the Canadian government.
The Bank of Canada has reduced its overnight rate to 0.75%, which will help prevent spiking borrowing costs due to rising risk premiums and credit rationing. The Canadian government has also postponed changes to the mortgage stress test by muting the change from the 5-year posted mortgage rate to the average 5-year fixed rate plus 200 basis points on April 6, with the B-20 stress test for uninsured mortgages to follow suit. Moreover, lower rates will help those renewing or refinancing mortgages, freeing up monthly cash-flow due to lower mortgage payments.
The BC housing market will not begin to see the impact of COVID-19 in economic data until later in the spring due to lags in processing data. Due to the level of uncertainty, the analysis of the impact of COVID-19 is restricted to just 2020, concentrating on factors that shift short-term housing demand. The results of this analysis show a steep decline in home sales in the second quarter of this year. Home sales will slowly recover but remain below baseline for 2020.