In April, Metro Vancouver saw a dramatic drop in home sales and listings
Because housing markets move slowly, it could take months for homes to start getting cheaper
After getting off to a hot start for 2020, the Vancouver housing market took it on the nose from the COVID-19 pandemic. This black swan event derailed optimism for what should have been a brisk spring. Suddenly, sales ground to a halt and new listings evaporated as worried sellers pulled their homes off the market for safety reasons.
The big question everyone is asking about housing in B.C.: What happens next?
The short answer is that we don’t know for sure, but there are some glaring problems staring us in the face. Economists and market participants are forecasting a deep recession, with some even suggesting a depression-type downturn. I hope that doesn’t happen, but the early numbers look troubling.
As people have retreated to their homes and economic activity has plunged, it’s clear that households are under stress. As of mid-April, nearly six million Canadians had applied for emergency government aid, according to the Ministry of Employment. By early last month, the big banks had seen almost 500,000 applications to their mortgage deferral programs, the Canadian Bankers Association reports. Look for those numbers to keep ratcheting higher.
No economy is designed to be shut down, and restarting things isn’t as simple as hitting a button. We’re likely to see a prolonged period of high unemployment, perhaps in the double digits. Also, Canadians entered this recession with bloated balance sheets—their households the most indebted amongst the G7 nations—and one of the lowest savings rates since the 1960s. In other words, there was no rainy-day fund for this kind of crisis.
As expected, Metro Vancouver home sales and listings plunged in April. Sales fell almost 40 percent year-over-year and about 56 percent versus the previous month, according to the Real Estate Board of Greater Vancouver. With sales sitting at close to 63 percent below the 10-year average for the month, it was the weakest April since 1982. For their part, new listings suffered a year-over-year drop of almost 60 percent and slid roughly 48 percent compared to March.
In April, the sales-to-active-listings ratio for all residential property types stood at 11.8 percent. As a rule of thumb, the REBGV notes, there’s downward pressure on home prices when that ratio falls below 12 percent for a sustained period. So far, prices have held steady. The current MLS composite benchmark for the region is $1,036,000, up 2.5 percent year-over-year and 0.2 percent from March.
It’s important to note that housing markets move very slowly. Given the recent pause in activity, if prices do move lower, it will probably take several months for that to start showing up. However, higher than normal unemployment will be a major headwind that will prompt a rise in foreclosures. For what it’s worth, those were already starting to rise before the virus, albeit off a historically low base, thanks to the incredible outperformance of residential property over the past couple of decades.
Policy-makers are doing whatever they can to support the banks and ensure liquidity to keep the housing market functioning. This includes doubling down on the 2008 financial crisis playbook. Canada Mortgage and Housing Corp. has relaunched its Insured Mortgage Purchase Program, which will effectively take $150 billion in insured and previously uninsurable mortgages off bank balance sheets to free up lending capacity. The Office of the Superintendent of Financial Institutions, the federal banking regulator, has lowered stability buffer requirements, and the Bank of Canada now has its own version of quantitative easing.
If all of this sounds overwhelming, you’re not alone. These are complex programs, designed to facilitate liquidity and stabilize the plumbing of the financial system. Without them, credit would freeze and house prices would tumble. So yes, policy-makers are working around the clock to keep things together, but will it be enough? We probably won’t know the answer for another six months or more. In the meantime, stay safe, and stay liquid.