For those living in Vancouver, or those who have kept a keen eye on this smoking hot Canadian real estate market, it will come as no surprise to hear that house prices are high. And condo prices. And townhouse prices. To buy any form of real estate in Vancouver, you need some deep pockets.
So, in the wake of the current coronavirus outbreak, many are questioning whether this crisis will serve as enough of a weight to burst the real estate bubble and bring Vancouver real estate prices to a more realistic level. While some economists are predicting an economic collapse of epic proportions, in contrast, many experts are not forecasting a significant impact on the Canadian housing market. Given the current trajectory of the market, and the other factors at play within Vancouver, the fall-out is expected to be minimal.
Unfortunately for prospective home buyers, this means that we may not see the downward pressure on prices that would have made the Vancouver real estate market more accessible. To help explain these forecasts, we’re taking a deeper look into the prominent Vancouver real estate price trends over the first few months of 2020, to help us gain a better understanding of how they will be impacted in the wake of this pandemic.
Vancouver’s Resilient Housing Market: A Look Back in Time
Sometimes, to understand how a market will react during periods of economic hardship, it is helpful to dust off the history books, and learn from how the market has endured, or suffered through past recessions. Vancouver’s story is for the most part, a positive one.
The 2008/2009 economic recession was characterized by a plunging stock-market, massive defaults in mortgage debt, and policy shifts by central banks in an attempt to ease the economic fallout; we are seeing similar factors at play in the economic market as the impact of COVID-19 ripples across borders.
During the 2008/2009 recession period, Canada experienced a modest drop in real estate prices, with Vancouver experiencing the most pronounced plunge. House prices in Vancouver showed a 14% decline over this period; prices in Toronto dropped only 6%, as a point of comparison. What is most notable however, is Vancouver’s bounce-back; since 2008, prices have climbed a whopping 82%, with the average price of a Vancouver home sitting comfortably at $1.3 million.
The good news is that, since 2008, Canadians are better positioned to bounce back from an economic downturn, thanks to significant gains in wage growth. This market resiliency, and the improvement in our financial well-being, is fuelling optimism that even if Vancouver does experience a temporary dip in prices, the impact will not be long-lasting.
A Strong Start to the Year
Responding to staggeringly unaffordable housing prices within Vancouver, the Government of Canada implemented a string of policies in 2016, aimed at taming growth within North America’s most unaffordable market. These policies resulted in a substantial dip in the number of home sales over the years that followed, but towards the end of 2019, the Vancouver market was showing strong signs of recovery.
According to the Real Estate Board of Greater Vancouver (REBGV), 2,150 homes were sold in February of this year, an impressive 45% increase from the previous year. This activity has been fueled by an increase in demand, but as this demand grows, the inventory in Vancouver is struggling to keep pace. These trends have been most pronounced in the condo market, and accordingly, prices have been slowly creeping up.
Much of Vancouver’s real estate market is fuelled by wealthy foreign buyers and investors. According to a report by the Canada Mortgage and Housing Corporation (CMHC), 11% of Metro Vancouver condos are owned by a non-resident. These wealthy investors have a dual impact on the market by driving up prices, and further limiting available inventory (which drives up prices even further).
In a market that is already notoriously one of the most expensive in the world, the question remains as to high how these prices can go, before the demand dwindles?
The Impact of the COVID-19 Outbreak on the Housing Market
The Bank of Canada responded to the crisis with three cuts to the overnight lending rate in March, leading the country’s big five banks to lower their prime rates. This temporarily made variable mortgage more attainable than they had been in a long time, making high prices less of a deterrent for determined home buyers. However, the COVID-19 outbreak has spurred an immense number of business closures and lay-offs within the city and across Canada, leading risk-adverse banks to raise their rates back up to pre-crisis levels.
Many remain hopeful that later in the year, once Canadians return to the job market and consumer confidence is restored, the banks will again lower rates to align with the Bank of Canada. In the meantime, there are a number of additional COVID-19 relief measures available to help homeowners, buyers or sellers navigate this period of economic uncertainty.
Meanwhile, real estate agents within the city, and country-wide, are working hard to make creative adjustments to allow buyers and sellers to continue to participate safely within the market. Mid-way through March, the Real Estate Board of Greater Vancouver urged it’s 14,000-stong list of members to abstain from hosting open houses, in respect of social distancing measures to limit the spread of the virus. REALTORS® have instead been making use of 360-degree interactive tours and other creative tools to showcase their properties. In-person tours are still taking place, but with a very limited number of buyers, and plenty of on-site disinfectant wipes and hand-sanitizer.
With foreign buyers making up a significant portion of the Vancouver market, the tight travel restrictions in response to the virus outbreak will inevitably leave its mark on the housing market. In fact, REALTORS® reported a notable dip in Chinese travellers and buyers during Chinese New Year.
Despite these elements at play, the Vancouver market hasn’t yet shown signs of slowing down. Condo unit sales under $1 million have been steady since the onset of the outbreak in Canada, and prices have yet shown signs of faltering.
Future Outlook for Prices in Vancouver
Given the uncertainly surrounding the spread, intensity and economic implication of the Coronavirus outbreak, it is challenging to confidently predict any market impacts. There is however, a strong sense of optimism felt by those involved in British Columbia’s sizzling real estate hub. With such heavy demand for Vancouver property, a pronounced lack of inventory within the city, and continued population growth fueled by immigration, this market is poised to return to business as usual.