Pent up housing demand during COVID-19 may lead to summer market rebound

As Canada prepares to weather the worst of the COVID-19 pandemic, there are already hopeful signs emerging from China where the novel coronavirus originated months ago.

China is maintaining a long streak of reporting no new local COVID-19 infections as its economy is gradually ramping back up after coming to a screeching halt earlier in the year. With it, the Chinese housing market is experiencing a sharp rebound in March, in what could be a bellwether for anticipating Canada’s own market trajectory once the pandemic’s impact subsides in the country.

“China’s private housing market is springing back to life as more sales offices reopened across the country following a nationwide shutdown, saving home builders from a deeper financial slump this year,” wrote South China Morning Post reporter Iris Ouyang in an article published today.

Ouyang cited home transaction volume in eight large Chinese cities that has eclipsed levels observed in the final quarter of 2019. She also noted that property sales in 30 tier-1 and tier-2 Chinese cities tripled in March from February, a sign that the coronavirus crisis was waning. South China Morning Post uses a four-tier system to rank cities in China using GDP, population and political governance data.

“There’s a release of pent-up demand from the Spring Festival and the coronavirus lockdown period in February,” Yang Hongxu of E-House China Research and Development Institute, a Shanghai-based real estate research firm, told South China Morning Post. “Thus we are seeing partial warming up of the property market.”

While nothing can be guaranteed during these extraordinary times, many economists believe that the experience of China and other Asian countries that were first hit by the virus early in the year will largely mirror the experience of Western countries now facing the full brunt of their outbreaks.

“If the dynamics seen in Asia repeat (and we have reason to believe it will) we are about 3 to 4 weeks away from the global pandemic inflection point,” wrote Tamara Basic Vasiljev, senior economist at Oxford Economics, in a research note published today.

“True, the numbers of coronavirus cases continue to rise sharply and western economies have been unable to repeat the success of Asian quarantine and containment policies. But the dynamics of COVID-19 deaths in the West are similar to patterns seen in Asia, pointing to a near turnaround,” she continued.

When this turning point is reached in Canada and new infections begin to ebb, there is promise that pent up housing demand in the country’s major markets will be unleashed in the second half of the year.

The conditions are certainly right for a reinvigorated market in the summer and fall. BMO economist Priscilla Thiagamoorthy wrote earlier this month that Canada’s housing market “found a solid footing in the first couple of months of 2020” before being derailed by the unprecedented disruptive effects of the COVID-19 pandemic.

In response to the pandemic’s wide-ranging economic impacts, the Bank of Canada slashed its key interest rate to a historic low last week.

With strong housing demand in the months prior to the pandemic and all-time low mortgage rates expected when Canada emerges on the other side of its COVID-19 crisis, there are plenty of reasons to expect a housing rebound in the subsequent months.

China is seemingly following this trajectory as its outbreak wanes, bolstering the case further that Canada’s market could bounce back rapidly if it follows the same path.