A predicted recession is on its way, and it will hit BC. But what does that mean for the housing market?
First, it’s important to understand how interest rates have changed recently. BCREA said that the Bank of Canada has “aggressively raised rates over the past year to fight multi-decade-high inflation.”
When inflation is high, central banks historically struggle to bring inflation back down to 2% without tipping the economy into a recession, said BCREA. A recession is predicted on the horizon for Canada by many experts and agencies.
Historically, the average Canadian recession lasts between eight and 25 months. Usually, GDP contracts by 4%, and the unemployment rate jumps by 4.5%.
The “worst” recession was from 1981 to 1982, when the economy contracted 6.4%, and unemployment jumped 10%.
However, experts at Deloitte have said that this coming recession may not see an overall dip in employment due to how tight the labour market is currently.
BCREA said that historically, 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 has reached its lowest point.
“The current state of the housing market certainly aligns with what we have seen prior to the onset of past recessions,” said BCREA.
“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.”
Interestingly, prices “tend to exhibit a relatively similar pattern to sales in the months before the onset of a recession,” too.
BCREA predicts that the housing market in 2023 will be below average, and prices will trend “downward in the coming months.”
It’s possible that the start of a recession could “roughly coincide with the start of the recovery in the housing market,” posits BCREA.
“While the housing market and the economy may experience a temporary downturn over the next year, there will be no shortage of demand for housing in the future,” they conclude.
Are you anxious about an upcoming recession?