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Latest in Mortgage News: Home Price Recovery Not Expected Until 2022

General Beata Wojtalik 6 Jul

Latest in Mortgage News: Home Price Recovery Not Expected Until 2022

On the heels of new data showing that home prices tumbled in April across many of Canada’s largest cities, CMHC is forecasting it will take at least until 2022 for a return to pre-recession levels.

The federal housing agency modelled out a pandemic scenario that was “not as severe as this,” CEO Evan Siddall said in a teleconference following the release of CMHC’s annual report. “And I’m sure that you’d understand that the realm of plausibility has expanded significantly as a result of all the experience we’ve had…Tens of thousands of Canadians are having trouble meeting their mortgage commitments.”

Siddall noted that early figures suggest about 10% of CMHC’s insured mortgages are now in deferral.

covid-19 mortgage lender updateCIBC economists say the housing market faces challenges in the coming 12 to 18 months, particularly once the mortgage deferral periods run out.

“Forced sales will add to supply, and probably outweigh the offsetting impact of reduced supply of new units,” they wrote.”In the coming few quarters, housing activity will dance to the volatile tune of economic activity. During that period, we expect continued reduced levels of activity, and an unreliable and volatile price mechanism.”

Prices are already down in April, according to recent data from a number of local real estate boards, including:

  • The Greater Toronto Area: Home sales down 67% year-over-year; average price down 11.8% month-over-month to $821,392
  • Greater Vancouver Area: Home sales down 39.4% year-over-year; benchmark price flat month-over-month to $1,036,000
  • Montreal Census Metro Area: Home sales down 68% year-over-year, median price for single-detached homes down 1.4% month-over-month to $360,000
  • City of Calgary: Home sales down 63% year-over-year; detached benchmark price down 0.35% from March to $479,100

Most of the above home prices are still up compared to April 2019, although forecasts peg eventual year-over-year price declines anywhere from 5% (Capital Economics and RBC) to 10% (Moody’s).

CMHC chief economist Bob Dugan says that reliable forecasts are difficult to make given the many unknown variables, but made this prediction: “For Canada and for Ontario, I think, the best case we’re looking at … house prices getting back to their pre-recession levels, at the earliest, by the end of 2022.”

CMHC Declares $2B in Dividends in 2019

The Canada Mortgage and Housing Corporation returned more than $2 billion back to taxpayers in the form of dividends to the Canadian government, according to its 2019 annual report.

The federal housing agency also reported its insurance in force stands at $429 billion, down 4% from $448 billion in 2018, and down from $526 billion in 2015.

CMHC declares dividendCMHC attributed this to “run-off of existing policies-in-force, primarily in portfolio insurance due to reduced volumes since the introduction of pricing increases commensurate with revised regulatory capital requirements in 2017.”

In an update on the First-Time Home Buyer Incentive, CMHC reported 2,950 applications for the shared-equity program as of December 31, 2019, representing financial commitments of $56 million. The program has a $1.25-billion budget with a goal of assisting up to 100,000 first-time homebuyers.

In his parting Message from the President, outgoing CEO Evan Siddall noted one of the agency’s accomplishments during the year being to “speak out against homeownership policies that stimulate demand via increased borrowing.” He added: “Containing housing demand and limiting indebtedness are also reinforced by the mortgage insurance stress test, notwithstanding opposition from mortgage brokers, realtors and homebuilders. Our role is to promote housing affordability, not to stay silent when the real estate industry seeks to preserve its income at the expense of housing affordability.”

New Bank of Canada Governor

We learned earlier this month that Tiff Macklem will become the next Bank of Canada Governor on June 3, replacing outgoing head of the Bank Stephen Poloz.

Macklem, a former deputy governor, was passed over for the job seven years ago to Poloz. Since then he has spent the past six years as dean of the University of Toronto’s Rotman School of Management.

In a press conference following his appointment, Macklem indicated support for current policy measures and confirmed he sees supporting market stability and providing liquidity as the bank’s top priorities. He also noted that he sees negative interest rates as “disruptive” at the present time, and that the bank isn’t justified in making firm economic forecasts given the current market instability.

Steve Huebl