A shift in markets has begun, and the outcome is uncertain

The market shifts

The World Health Organization’s declaration on March 11 that the novel coronavirus COVID-19 was a pandemic triggered a wave of public health and fiscal policy measures abundantly covered in this publication and others. What was recommended in the interests of public health one day became a requirement the next.

Over the course of a week, B.C. provincial health officer Dr. Bonnie Henry went from suggesting people gather in groups of less than 250 to shutting down bars and urging a separation of two metres between shoppers in retail premises. “Go outside and play with your family. Go up to our ski hills. Go up to Whistler,” she urged on March 13; the following day, Vail Resorts Inc. announced that its North American resorts, including Whistler Blackcomb, would close beginning March 15.

The restrictions will deliver a significant hit to the cash flow of local hotels – which until last year had been setting new performance benchmarks – and other properties rooted in tourism and socializing.

The Canadian Tourism Commission estimated that severe acute respiratory syndrome (SARS), also caused by a coronavirus, cost hoteliers 662,000 room nights in April 2003. Room revenues in B.C. fell 5.5% that month versus the previous year. According to the commission, the total impact on Canada’s economy from SARS that year was $519 million.

Meanwhile, governments around the world have unleashed economic remedies like it’s 2008. Policies rolled out in response to the financial crisis have been redeployed even before the full impact of the pandemic on businesses and personal finances is known or can even be assessed. The Office of the Superintendent of Financial Institutions postponed changes to the stress test applied to mortgage applicants – the comment period ended March 17, and a decision was expected by April 1 – while the Bank of Canada cut its benchmark lending rate to 0.75%, a percentage point lower than the rate in January. The two moves suggest concerns about overheated housing markets and unaffordable home prices in Canada are a thing of the past.

Reduced availability

But if the financial measures are in place, are the buyers?

Travel restrictions have largely removed foreign nationals from the market for the foreseeable future (the province’s health minister has even advised U.S. residents to stay home), but everyone now faces restricted access to presentation centres and added hurdles in closing deals. Brokers contacted last week indicated that clauses to accommodate longer closure times were being written into contracts to account for the delays. And, of course, many buyers were staying away altogether, prioritizing the health and needs of themselves and their families.

There’s also a smaller selection of projects on offer. Project launches in Metro Vancouver have declined steadily over the past three years, from a peak of 199 in 2017 to 105 last year. To quote the Canada Mortgage and Housing Corp.’s summary of its latest assessment of the Vancouver housing market, “There continues to be low evidence of overbuilding.”

Michael Ferreira, managing principal of market research firm Urban Analytics Inc., expects COVID-19 will “definitely delay the launch of any significant new projects,” further exacerbating the region’s shortage of available housing.

But the issue circles back to the economic fallout of the pandemic.

“Will there be a bump in activity resulting from pent-up demand, or will the market slow as a result of the loss of income many are incurring from not being able to work?” Ferreira asked.

The answer to that question will surely lie in the duration of the public health emergency, the amount of spending that’s curtailed and how many jobs are lost temporarily or permanently as a result.

RBC Economics says the tight market conditions mean a price collapse is unlikely, but “the timing and magnitude of the rebound are highly uncertain at this point.” Scotiabank, for its part, is optimistic, forecasting “a strong rebound beyond Q3” as interest rates remain near record lows. •