Why did our market take off during a global pandemic?

We were fortunate to get exclusive, in-depth market intelligence – specific to our Fraser Valley region – from BCREA’s Brendon Ogmundson.

He details: What happened in Fraser Valley’s market last year, and answers the million-dollar question, can it sustain in 2021?

This is part one of two with the second installment coming in next week’s NewsReal. First, we look back at a year like no other and next week, we look at what’s ahead.

FVREB Communications in conversation with Brendon Ogmundson, BCREA Chief Economist:

Q: How would you describe Fraser Valley’s real estate market in 2020? Walk us through what happened starting from what looked like a decent start of the year…?

After two years of demand being stifled by various government policies – principally the B-20 stress test – and new taxes on housing, the Fraser Valley market was set to continue to recover and record an average, typical year. However, as members know, that return to normal was swiftly upended by a worldwide pandemic that threw a blanket of uncertainty over the entire global economy.

With the industry and society in lockdown during the spring months, the housing market slowed dramatically. Sales in the early spring fell to unprecedented lows and it was anticipated that sales would remain below normal through the summer months and possibly beyond. No one knew.

Then the unexpected happened.  Home sales in the Fraser Valley began to climb in the early summer, eventually setting or nearly setting monthly sales records through the fall and winter.

By year’s end, in the midst of a global pandemic, with BC facing a jump in the unemployment rate to a 30-year high, with borders closed, and with immigration halted, sales in the Fraser Valley finished the year up over 28 per cent while benchmark home prices were up over 13 per cent.

“The housing market in 2020 was nothing short of remarkable.”

Q: No one knows BC’s economy and the housing market like you, how unusual was this post-lockdown response?

The performance of the housing market in 2020 was nothing short of remarkable. The COVID-19 recession battered many sectors of BC’s economy, but looking at the housing market, it would be difficult to tell that there was a recession at all.
In a typical recession, housing sales decline as job losses and heightened uncertainty prompt potential buyers to pull back from the market. At the same time, the supply of listings accumulates as some households are forced to sell due to rising unemployment and falling incomes. The COVID-19 recession, however, has been anything but typical. Instead, this recession has seen a remarkably swift rebound in home sales and prices, not only to pre-COVID-19 levels but to historic highs.

Hindsight is indeed 2020 when it comes to 2020

Q: Did the rebound surprise even you?

A: The speed and strength of the recovery was absolutely surprising, but with the benefit of hindsight we can see clear factors that propelled the market forward.

First, the real estate industry did an excellent job in ensuring that transactions could continue without undue risk to the public. Secondly, the impact of the COVID-19 recession on the provincial labour market was not equal across sectors. Most job losses afflicted low wage sectors of the economy, like front-line service sector jobs, while employment in above-average wage sectors that tend to drive the ownership market has risen about 5 per cent above pre-COVID-19 levels.
Most importantly, a swift and overwhelming policy reponse from the Bank of Canada pushed mortgage rates to new record lows.  All of those factors, along with a surge of pent-up demand after the initial crisis phase of the pandemic, meant that demand for housing returned with vigour.

Homes became all things to all people all the time

Q: We saw some specific home sale trends in the Fraser Valley due to COVID-19 – can you delve into those more?  

A: There’s no question COVID-19 altered the needs of BC families as homes suddenly became a workplace, a school, an entertainment centre, and a refuge.  We’ve seen a pronounced shift towards demand for larger homes and for those working from home, a commute becomes less relevant.

The extra space afforded by a single-family detached home that fulfills those needs, along with record-low borrowing costs, resulted in the sales numbers we’ve seen. In the Fraser Valley, sales of detached homes almost doubled in December, rose over 40 per cent in 2020 compared to 2019 and approached 50 per cent of total sales for the first time since 2017. So, it’s no surprise that prices for detached homes closed the year up with double-digit increases.

Sales of townhouses, a close substitute for single-detached, were up over 30 per cent in 2020, with more modest price gains of around 5 per cent year over year.

Q. And how about apartments? How did Fraser Valley condos fare in a pandemic year?

A: Apartments began the year with challenges due to strata insurance, and as an investment vehicle or entry-level home for first-time buyers, apartments were clearly held back by the pandemic’s impact on younger workers and renters. Still, even with those challenges, apartment sales across the Fraser Valley finished the year higher and prices appreciated close to 5 per cent.

In terms of the condo sector as a whole, as vaccinations progress, the economy heals, and borders open to tourism and immigration, we anticipate demand for apartments will post a strong recovery in 2021.