How has Covid-19 and the resulting economic recession impacted BC’s housing affordability? Much like these uncertain times, it’s not at all as expected - in fact, BC housing prices are at an all-time high.
Recent years have seen BC housing prices soar to unexpected heights, leaving many to believe it’s just a matter of time before the real estate bubble bursts. Foreign buyers and ineffective regulation have long been to blame for the inflated prices of homes in BC, benefitting existing homeowners and sidelining young buyers. But how has Covid-19 and the resulting economic recession impacted BC’s housing affordability? Much like these uncertain times, it’s not at all as expected - in fact, BC housing prices are at an all-time high.
“In a typical recession, we would see falling demand and rising supply, but this recession is anything but typical,” says the British Columbia Real Estate Association’s (BCREA) Chief Economist, Brendon Ogmundson.
According to the BCREA, this past September was record-setting for the BC housing market. September’s housing sales were up 63% higher than they were in September 2019, despite the total number of active listings being down 12% from the previous year. In addition to the supply of housing being tighter than ever, low-interest rates, quick government aid like income support, and an increase in household savings, are among the few contributors to the overwhelming spike in demand and subsequent rise in housing prices.
CBC’s finance columnist, Mark Ting noted, “Many people are selling their downtown condos and purchasing houses in the suburbs.” The work-from-home trend, arguably one of the most significant impacts of the Covid-19 pandemic, appears to be creating a demand for housing skewed largely towards single detached homes. Homes with additional spaces for homeschooling and a home office are becoming increasingly attractive, as the need to live close to work is no longer a necessity for many buyers.
Another explanation for this shift in buying behaviour may also be due in part to the low-interest rates offered by the Bank of Canada. Ting reasons, “Interest rates dropped. This lowered the cost of borrowing for buyers and increased the amount of “house” they could qualify for.” These, among various other factors, have resulted in a surge in prices of single detached homes, while the prices of condos are beginning to see a decline.
The Unusual World of Pandemic Economics, a Market Intelligence report released by the BCREA, points to an increase in disposable income and uneven job loss as additional contributors to the strong performance of the real estate market amid the pandemic. The report found that the disposable income of Canadian households jumped 11% from Q1 to Q2, while household savings reached a record high of 28.2% in Q2. Government aid, such as the Canadian Emergency Response Benefit (CERB), the closure of stores and subsequent decrease in spending as a result of the first wave’s lockdowns are said to be the cause of such dramatic increases in income and savings.
Additionally, the BCREA’s report observed an unprecedented impact of employment on the affordability of housing. Unlike previous recessions, the BC economy is experiencing uneven job loss, disproportionately affecting low-wage sectors. Employment in high-wage sectors has returned to pre-covid levels, resulting in greater inequality than ever before. As the price of housing increases with no end in sight, potential homebuyers in low-wage sectors continue to be pushed out of a market favouring existing homeowners and those in high-wage sectors.
So, what can we expect from the market as we head into the new year? If all factors remain the same, the demand for housing could continue to grow, pointing to a strong real estate market in 2021. However, as the BCREA’s report indicates, “Pandemic economics are very unusual and in these unprecedented times, history may not be as strong a guide.”
Facing a market flooded with tremendous uncertainty may leave you wondering if now is a good time to buy or sell. To make a better-informed decision, we must consider the factors with the greatest potential to influence supply and demand within the market.
With no guarantee that housing prices will stay on the rise, now could be the perfect time to sell. Despite the upward trend, the unpredictability in the market is far too great for sellers to bank on greater profits in the future. Unlike sellers, buyers face a less than desirable circumstance, as they risk paying unreasonably high premiums for a piece of BC’s booming real estate. Looking into the new year, if market factors continue to intensify pre-covid inequalities and affordability issues, many will remain sidelined with little choice but to rent.
Photos: contributed, istockphoto