Will COVID-19 dampen buying activity?

by Gerv Tacadena on 17 Mar 2020

The spring market in Canada's major housing pockets would likely be dampened by the coronavirus outbreak, according to market watchers.

The potential lockdowns in some cities across the country and the self-isolation measures could stifle price growth as homebuying plans are pushed to the back burner, said Robert Hogue, senior economist at RBC Capital Markets.

"We are coming to the view now that because of the virus and the meltdown in financial markets, we will mostly likely see a decline in buying activity through at least parts of the spring market, and maybe even going into the summer market," he said in a report in the Financial Post.

Hogue said the COVID-19 outbreak might also discourage borrowers from taking larger debt even with the low interest rates.

The Bank of Canada lowered the overnight rate by 50 basis points to 0.75% last week. The bank rate was consequently reduced to 1% while the deposit rate was slashed to 0.5%. This was the first time the BoC delivered an emergency rate cut since the financial crisis in 2009.

The BoC said the move was in response to the COVID-19's material negative shock to the Canadian and global outlooks.

"COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated," the central bank said in a statement.

The BoC said the outbreak will likely dampen the anticipated growth during the first quarter of the year.

"The drop in Canada's terms of trade, if sustained, will weigh on income growth. Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments," it said.

Due to the uncertainties, Hogue said it would take a while before property buyers and sellers can adjust to the new situation.

"I don't think it has sunk it quite yet. But I know every forecaster out there is working the numbers and I can guarantee you when these forecasts come out, prices are not going to go higher," he said.

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