➡️Key Takeaways:
- The housing prices/sales showed declines many months prior to the official start of the recession.
- Other than 1981/82 – prices did ascend during the recessions as policy makers had to cut rates to support the economy.
- Home sales typically post strong recoveries the year following a recession.
A predicted recession is on it’s way, you might be wondering how this will affect the BC Housing Market…-
The British Columbia Real Estate Association recently published a report “A Guide to Recessions and the BC Housing Market”. This report helps us get an insight of how Canadian recessions have impacted the BC economy and housing market in the past. It also helps us predict if recession was to happen now – this year, what we could expect the housing market to look like.
Interest rates have changed significantly over the past year. The Bank of Canada “aggressively” raised rates to combat high inflation. Central Banks struggle in bringing inflation back down to 2%, without bringing the economy into a recession, as stated by the BCREA.
In the past, recessions have lasted between 8-25 months, with a 4% increase in GDP and 4.5% increase in unemployment rate.
The worst of all recessions was in 1981, where unemployment rates were at peak. Yet, experts say that in this coming recession we might not see a big decline in employment due to tight labour market conditions. Businesses are in need of employees and roles to be filled, and it seems that this recession will be more so “self-induced” as if it is being wanted…
In 2020, the COVID-19 recession was quite different than past recessions. As financial support was given to many Canadians through the CERB, the central bank had lowered interest rates and engaged in quantitative easing. This resulted in an unusual spike in disposable income and savings.
BCREA said that previously home sales lead the business cycle. Home sales start to decline months before the start of a recession and by the time a recession starts, the housing market is at its lowest point.
“Home sales have fallen about 50% from a near-record high at the start of 2022 and are currently about 25% to 30% below historical averages.”
The current housing market is at about what we have seen prior to the onset of past recessions,” said BCREA.
Prices seems to exhibit a relatively similar pattern to sales in months before the onset of a recession, as you can see in the graph below:
BCREA predicts that in 2023, the housing market will be below average and prices will come down in the coming months, yet there will be no shortage in demand for housing in the future.
Resource: BCREA – https://www.bcrea.bc.ca/wp-content/uploads/2023-01-19-market-intelligence.pdf