Mortgage Blog
Working For You, NOT The Banks!
Covid-19 and the Victoria Real Estate Market March 20th 2020
March 23, 2020 | Posted by: Andrew Wade
Covid-19 and the Victoria Real Estate Market March 20th 2020
So everyone in the whole world is somewhat scared and largely self isolating at their homes right now to stop the spread of the disease Covid 19 or the Coronavrius. Global Markets have been absolutely hammered in the last month with the S&P 500 dropping over 1121 points. And the market going up and down faster than a roller coaster at the Saanich fair. The Federal and Provincial Governments have all declared a state of emergency and has recommended everyone to self isolate to get the bug under control to stop spreading the virus. All restaurants and public places have been shut down for anything but take out sales. Walking around downtown today was the weirdest thing ever. Picture this a beautiful sunny day in the Capital city and the streets are completely empty. No one is around and no restaurant is open for anything but take out.
The Victoria real estate held strong throughout this so far any way, and somehow sales have increased as well as values remained high! Multiple offers have even started happening again in the under 1 million market. As of March 1-16th there was 30 unconditional sales 595 new listings and 2224 active listings in Victoria. As of today there has been 79 new sales with 154 new listings.
Short term effect of this catastrophe in our local market
It seems likely that the sectors most dependent on tourism will be the hardest hit by COVID-19. Retail, accommodation, food services, culture and recreation make up about a quarter of the employment in Victoria, and that is where we may see some job losses (or simply a lack of seasonal hiring) going into the summer. Cruises are almost certainly done for the year with the feds just now banning all cruises of more than 500 people until July, and flights are being cancelled in droves, which will further reduce the city’s annual influx of tourists. BC Ferries, similarly, will also almost certainly see a drop in traffic in the coming months. That means thousands fewer tourists leading to millions of dollars in missing tourism spending for the local economy.
Prices in Victoria have historically remained high regardless of the economic situation around them. Even in the very slow market from 2010 to 2013, prices only drifted downwards at a rate of about 2% per year. Most Victorians listing their properties do not really need to sell and if buyer interest declines, they will simply take their listings off the market and wait for better days. However, there is a smaller group that absolutely needs to sell at any given time, whether that is due to a death, moving away from Victoria, or changing financial circumstances. During a demand shock the number of buyers can drop below the number of people that must sell, driving prices downward quickly. Try to be vigilant and not panic when deciding to cut your losses with investments as it is impossible to predict the future of the market or a low where the buying is the most optimal. Most lenders are being very sympathetic (partly due to government instruction) to deferred and skipped payments. If you feel like there is going to be an issue, start talking with your lenders now. Everyone is extremely busy so engage with your lenders early instead of last second. Keep those late payments off your credit bureaus people as they will be left off of your credit if you have that conversation, otherwise they will be put on your bureau and that is never good for getting the best rate!!
Medium term effect in our local market;
The most recent major downturn that we have experienced was the subprime mortgage rate financial crisis in 2008 where sales in victoria were down 57% compared to 2007 but only a maximum drop in value of 8% from the same year. Its important to realize that this will only be a temporary crisis but also a major set back for anyone in the stock market relying on returns from the market to fund their retirement. This shouldn’t last more than 12-16 months to get a vaccine and put this issue to bed worst case scenario, as they are already vaccines they are testing on humans affected by the virus already. China and South Korea may already be through the worst of it with the rate of new cases has slowed down and they appear to be through the worst of it. When we see this in Canada, people will start to relax and economic activity will begin to return to Victoria. There may even be a bit of a surge of activity to compensate for the previous slowdown as the economy catches up on lost time.
After the acute period, impacts on the housing markets will largely be positive. Bank prime rates have been cut by an incredible 1% since March 1st as the Bank of Canada has sought to offset the economic pain from the virus. Rates have actually started to go up in the wake of a lack of liquidity in mortgage backed securities with the government wanting to make sure Canadians can weather the storm and get through this as best as possible. One interesting difference in the government approach this time (as opposed to the Great Financial Crisis) is that policymakers are trying to avoid sparking a rush to real estate. The mortgage stress test was scheduled to be relaxed in April which would have increased buying power even further, but that has now been put on hold. The Canadian Mortgage and Housing Corporation's president, Evan Siddall, tweeted that “deferral of new mortgage interest stress test benchmark will help direct monetary stimulus (rate cut) towards highest economic productivity and away from increased house prices.' In other words, they are hoping the rate cut will stimulate the rest of the economy, not just inflate the housing market. However, once the virus is in the rear view mirror, lower rates alone should cause a rush of sales to come back to the market.
Long term Effects still hard to tell how hard this will hit
We will get through this, the strong will percivere and we will recover back to our usual lives. Eventually, when the Bank of Canada sees enough economic recovery, they will raise rates again and remove any emergency stimulus that they have in place. Then we will return to stability and the increase of inflation and in turn rates of interest and prices of products. We could see a substantial amount of deaths and unprecedented levels of stress and terror in the world. Buckle up because it could be a bumpy ride for a long time to come, but even the Great Depression ended in 4 years! These are uncharted waters, and no option is off the table yet. What we do know is that the severity of the impact depends largely on how we respond as a society going forward. Stay safe out there.
Be kind to your neighbours, stay strong and be true to yourself always.
Andrew Wade
