Pandemic's Vancouver real estate prices by 2021, CIBC economists predict CIBC expects prices to be 5 — 10 per cent lower

Pandemic's economic hangover will hit home prices by 2021, CIBC economists predict

CIBC expects prices to be 5 — 10 per cent lower

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The economic shock caused by the coronavirus pandemic will have the housing market in flux in 2020, and its lingering effects could lead to lower resale prices when the dust begins to settle, according to economists at the Canadian Imperial Bank of Commerce.

“The expected volatility in overall economic activity in the coming quarters will not skip the resale market,” CIBC economists Benjamin Tal and Katherine Judge wrote in a report released Friday. “By 2021, as the economics of housing returns to fundamentals, we expect an array of factors to result in a weaker market with some downward pressure on prices.”

Demand will drop because of a weak jobs market and weaker investment, expect Tal and Judge. Meanwhile, some homeowners will be forced to sell, increasing supply to the point it could outweigh the effects caused by reduced supply of new housing.

“Overall, as the fog clears, we expect to see average prices 5-10 per cent lower relative to 2019 levels, with high-cost units in the high-rise segment of the market seeing the most notable price declines,” the CIBC economists added.

The prediction comes as the economic fallout from the COVID-19 pandemic has forced hundreds of thousands of Canadians off the job and without the stability they may require for big purchases, such as a new home. The desire for physical-distancing and concern about going into a stranger’s home has also posed challenges for the real-estate sector, which has been forced to adopt virtual property showings and to slow construction amid the outbreak.

National home sales dropped by 14.3 per cent month-over-month in March, although they were up 7.8 per cent from a year earlier, according to the Canadian Real Estate Association. CREA’s home price index rose 0.8 per cent in March compared to February and by 6.9 per cent over a year earlier.

However, March was sharply divided for the housing sector, with much of the sales activity recorded in the first half of the month, before the implications of COVID-19 set in.

“Numbers for March 2020 are a reflection of two very different realities, with most of the stronger sales and price growth recorded during the pre-COVID-19 reality which we are no longer in,” said Shaun Cathcart, CREA’s Senior Economist, in a press release.

The CIBC economists wrote that the resale market is now “basically frozen,” with sales and new listings in Toronto down by 69 per cent and 64 per cent on a year-over-year basis as of mid-April.

“If you really don’t need to, you probably aren’t conducting any real-estate transactions at the moment,” Tal and Judge wrote. “Therefore, the price signal that we are getting from recent data is both weak and misleading.”

The cumulative damage suggests that when we recover, potentially at one point in 2021, we will be recovering into recessionary conditions


In the meantime, Canada’s unemployment rate is heading to upwards of 13 per cent from a pre-crisis level of 5.5 per cent, the CIBC economists noted.

Even with the introduction of a vaccine the economic recovery could be sluggish. Much of the rise in unemployment represents temporary layoffs and jobs that will be regained in the recovery, but some of the economic damage being done will linger longer, Tal and Judge added. This could leave unemployment at around eight per cent next year, they suggest.

“The cumulative damage suggests that when we recover, potentially at one point in 2021, we will be recovering into recessionary conditions,” Tal and Judge said.

While moves by the Bank of Canada to lower interest rates and inject liquidity into the financial system are helping with mortgage rates, the cost of borrowing “is always secondary in an environment of low confidence, increased unemployment, and slower income growth,” the CIBC economists wrote.

The pandemic has also prompted more than 700,000 Canadians to defer payments on their mortgage, according to the Canadian Bankers Association. That will delay an uptick in home loans going into arrears, the CIBC World Markets report said, but there will be a moderate rise in 2021, to an arrears rate of just below 0.4 per cent.

Financial Post

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