The B.C. Real Estate Association's chief economist says, "this isn't a typical recession."
Experts disagree on how pandemic-related job losses will impact Metro Vancouver real estate market
Sukh Mann, owner of Crown Palace Banquet Hall in Surrey, says incentives such as lower interest rates are very attractive and he is hearing about people upgrading or now jumping into the housing market.
But many of his employees and other service workers at hotels, retail, restaurants, bars and nightclubs can’t do the same because these businesses have been hit particularly hard with closures and restrictions because of the pandemic’s physical distancing requirements.
There is a mismatch in policies intended to support the real estate market in that they don’t help the buyers who need them the most, he feels.
“The aggressive buyers are coming in, and people who have jobs that have some type of security will try to buy something,” said Mann, who is also president of the B.C. Banquet Hall Association, which is absorbing Tuesday’s provincial public health order that all such facilities must shut down again to curb the spread of COVID-19.
He explained that while about half of the 1,200 workers in the local banquet hall industry are younger people who come in seasonally, looking to make money to pay for rent or tuition, the other half are between the ages of 30 to 45. They are chefs, banquet hall supervisors, event coordinators, and booking managers.
“These are those people that are looking forward to buy or get into a townhouse, whatever it may be, or buy a car. How are they going to do that now?”
His views are being echoed by a new report by the B.C. Real Estate Association’s chief economist, which says “this isn’t a typical recession” and that home prices are on an unexpected and swift rebound because, while the pandemic has slammed some parts of the economy, many jobs in higher-wage sectors haven’t suffered.
In fact, some households have been able to save more than they usually do because they aren’t shopping or eating out as much, and also not taking vacations. “The Canadian household savings rate climbed to a record high of 28.2 per cent in the second quarter of 2020, eclipsing the previous record of 21.2 per cent in 1982,” wrote BCREA chief economist Brendon Ogmundson.
The backdrop for this, however, is a high-profile clash between the real estate industry and the Canada Mortgage Housing Corp.’s prediction that declines in household income and employment could mean home prices are headed for a significant and prolonged drop.
The CMHC, which has tightened underwriting policies for high-ratio borrowers, has also been vocal about the danger of fuelling the stress of home ownership in expensive markets for buyers with uncertain financial prospects in a weak economy.
“When we look at other forecasts, the one that gets quoted the most is the CMHC forecast where they’re expecting prices to fall 10 to 20 per cent. It’s hard to fault them for that forecast, but it has turned out to be not very accurate,” said Ogmundson. “Generally, if you have a big shock to the economy, in any conventional forecasting model, you’re going to get falling sales, falling prices, and rising supply. But that has turned out to be wrong, and a good thing.”
“It’s looking like they’re going to have to revisit that sooner rather than later,” Ogmundson said of CMHC’s forecast.
Vancouver realtor Steve Saretsky is careful to point out factors affecting a market rebound.
While detached house sales in the Fraser Valley for the last three months “surged” 53 per cent compared to the same period last year, downtown Vancouver condo listings saw no growth and an 80-per-cent increase in listings.
He recently wrote that multiple offers and rising prices for detached homes under $2 million are indeed “surprising … considering the economic backdrop,” but this frenzy is tempered by estimates that with mortgage deferrals ending, mortgage arrears could reach one per cent or more in 2021, which would “stall recent momentum.”
“It’s hard to imagine this being sustainable, we will have to wait and see if buyer demand can continue, or whether it was simply ironic timing as a wave of pent-up demand mingled with an undersupplied market.”
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