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So Why Are Real Estate Prices Rising Despite the COVID 19 Pandemic?

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In a “normal” world, low unemployment indicates that the economy is functioning well and this bodes well for house prices. On the other hand, a weak economy does the opposite: high unemployment results in less demand for homes, which translates to lower prices.

According to Moody’s analytics, for every 1% increase in unemployment, there is a drop of around 4% in house prices. Between February and August this year, the unemployment rate doubled, however, the housing market was hitting all time highs!

So why wasn’t there a plunge in house prices and increase in homes available for sale with all this unemployment and economic downturn?

1) Thank you banks and the government. The income replacement programs that were hastily introduced to cushion the sudden lack of funds in a family’s budget, and the mortgage deferment program, has given some affected homeowners some financial reprieve and allowed them to keep their homes off the market.

2) Interest rates have dropped to unprecedented lows, significantly lowering the cost of borrowing for potential buyers. The lower rates increased demand at a time when the housing supply was relatively low, and this is partly responsible for house prices to rise.

With the dialing back of the government rescue package and expiring mortgage deferment period, the next few months will be a good indicator of how the housing market will fare.

Of the 7% of mortgage holders who deferred their payments, some did it as a safety issue to conserve cash in case things got really bad, others deferred as they lost their jobs, but got government help to fill their income gap and have resumed work. It is the mortgage holders that are still unemployed that may have to sell their homes, and they are the most vulernable.

For those who are forced to sell, they will be getting a better price as house prices are going up on a month-by-month basis – this should give them some consolation in an otherwise desperate situation.

The pandemic has also reshaped the way we work.  Since proximity to work is no longer a requirement, the home office has gained more importance. There is now a shift from a downtown condo in favor of a detached home with a back yard in the suburbs. An excess supply of these condos may cause a price decline in the long run.

The real estate landscape in Vancouver is changing dramatically. If you are buying or selling a home, you need to get in touch with us. We are an experienced real estate company and will advise you on how to move forward. Contact us by email or call us on 604 913 1000.

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