What happens to Vancouver Real Estate as the COVID-19 (Coronavirus) pandemic rages on? British Columbia has declared a state of emergency, restaurants and bars have closed and the streets are largely deserted. But will homes continue to sell? There may be no one better to comment than today’s guest, Dustan Woodhouse. As President of Mortgage Architects, one of the largest brokerages in the country, Dustan is not only part of high-level policy strategy sessions but also oversees close to 1500 mortgage brokers on the ground across Canada. What do the two Bank of Canada emergency rate cuts mean for the economy and consumers? How does this impact lending and your mortgage specifically? And what does this mean for Vancouver Real Estate in 2020 and beyond. Listen up!
What does the the Bank of Canada COVID-19 (Coronavirus) March 13, 2020, emergency rate cut mean for Canadians and the Canadian economy at large?
Dustan suggests that this emergency rate cut is unprecedented, especially since the Bank of Canada dropped a half of a percent basis and not a quarter which is the typical fluctuation increment. Dustan has been expecting them to come down a quarter point since last October so he wasn’t totally surprised with the news.
But, the fact that the Bank of Canada then reduced prime again by an additional half point indicates that this is not about homeowners or purchasers at all but about the macro economy – it’s about keeping liquidity in the banking system, keeping business lines and credit flowing, and keeping Canadian businesses operational.
For Dustan, this means that that there are a lot of bright consultants and bureaucrats in Ottawa crunching numbers and analyzing the data and realizing that COVID-19 (Coronavirus) is a big deal could have a significant impact on the Canadian economy and that the Federal Government needs to take drastic measures to ensure that they keep the wheels turning for the economy and that businesses remain in operation.
To be clear, Dustan explains, the trickle-down effect of a down economy, even for one week, is significant but if this carries on for one month or two months, it’s going to be very dramatic.
Dustan’s prediction: Expect another emergency cut – possibly during the week of March 15, 2020 – March 21, 2020. There is a strong chance the Bank of Canada will drop prime to 0% in the next three weeks.
What happens if the Bank of Canada drops prime to 0% and the Canadian economy does not respond?
In an email that Dustan sent out to his team of brokers, he opened the communication with the Michael Levitt quote: “Everything we do before a pandemic will seem alarmist. Everything we do after will seem inadequate.”
Had the Canadian Federal Government closed the borders on March 1, 2020, Dustan explains, everyone would have been up in arms. This is because the Canadian government is walking a fine line – they don’t want to incite panic taking radical action and they recognize that the public must be onside for extreme measures.
The challenge is that by the time the Canadian public is on board with reform, it’s often too late to be effective in the spread of disease. Most people, at this time, seem to be onboard with social distancing and even social isolation for a few weeks in an attempt to flatten the curve.
Dustan is optimistic if we can keep the duration of the isolation or shut down to a couple of weeks; however, the longer people are isolated, the more challenging it will be on Canadian businesses and the economy overall.
How has COVID-19 (Coronavirus) impacted other Canadian real estate markets?
As of March 17, 2020, Dustan explains that some markets (without identifying specific cities or towns) seem to still be having open houses, multiple offers and it appears to be business as usual.
That said, he explains, there are other markets that have reacted with more concern and realtors or their clients have cancelled open houses and showings.
Dustan’s prediction: In the very near future, open houses will stop, showings will stop, and activity will slow down for at least a few weeks.
How will COVID-19 (Coronavirus) impact Vancouver Real Estate and Canadian Interest Rates in 2020?
Interest Rates: Bad news for interest rates is good news. Anytime there is economic turmoil, there will be low interest rates. And low interest rates will continue to be low until the economy is recovering substantially.
Dustan’s Pro-Tip: If you are in a variable rate currently, do not lock yourself into a fixed rate. Interest rates are not going to be increasing anytime soon and fixed rates often come with extremely high penalties for not completing your term.
Vancouver Real Estate Prices: There is a chance that Vancouver real estate prices could dip as a result of isolation and people taking themselves out of the market. However, presumably, fewer sellers will be coming to market and less supply tends to support prices. This could just result in a flat, balanced market.
Dustan suggests the impact of COVID-19 (Coronavirus) is contingent on the duration of the spread and/or people practicing social distancing. If COVID-19 is contained within a matter of weeks, then we could still have a very buoyant Spring market in Vancouver.
However, if not contained in a matter of months, then we could see the Spring market suffer significantly with very few sales and a longer recovery.
But, as Dustan suggest, Vancouver real estate tends to go up over time and his belief is that values in the next 5-10 years will higher than values today. For example, in 2009 (immediately after the 2008 US recession), the Shangri-La in downtown Vancouver was selling for $500/square foot which seemed incredibly high at the time by anyone’s standards. Today, in 2020, the Shangri-La sells on average for $1400/square foot. In short, it’s time in the market, not timing the market.
Dustan’s Pro-Tip: Don’t treat real estate like a stock and try to time the market with the attempt to flip it or sell within a very short timeline. Real estate should be a long-term investment or an investment in homeownership. Understand your timelines and your goals.
Should I get a variable rate or fixed rate in Canada in 2020?
In short, Dustan believes in variable rates, largely due to very high penalties connected to fixed rate products, are a much better offer. He also does not see rates in Canada increasing in the foreseeable future and suggests that, even if they do, you will still likely be better off.
Should I use a Bank or a Mortgage Broker and should I refinance in 2020?
Call your Mortgage Broker. Dustan admits he is bias, but he still firmly believes it’s the best route. A Mortgage Broker has access to multiple chartered banks, multiple credit unions, and multiple non-chartered banks (who are actually just lending you the banks’ money but with lower overhead and lower rates).
If you are considering refinancing, have a Mortgage Broker run the numbers for you. If the savings outweigh the penalty, refinance. If not, stick with the current mortgage you have in place.
Will the Bank of Canada emergency rate cuts in 2020 be passed on to the consumer?
Yes. Historically, Dustan explains, the banks have consistently passed on the rate cuts to the consumer. He expects that there is some federal pressure on the banks to do so, so expect rates to drop in the upcoming months.