CMHC VS. REAL ESTATE

DOES THE CMHC HATE REAL ESTATE?



If you were review the statements and reports and press releases being issued by the Canadian Mortgage and Housing Corporation lately, you might easily come to that very conclusion.

On Tuesday 19th May 2020, Mr. Evan Siddall, President & CEO of the Canada Mortgage and Housing Corporation (CMHC) addressed the Federal Government's Standing Committee on Finance in a virtual meeting conducted by Zoom and recorded for posterity by ParlVU. Here is a clip from the over 3.5 hour meeting that took place that day.


Among the many things that Mr. Siddall states at this moment in the meeting are as follows:

  • Canadians are among world leaders in household debt.
  • Pre-COVID, the ratio of gross debt to GDP for Canada was at 99%. 
  • Due in part to increased borrowing but even more so to declines in GDP, we estimate it will increase to above 115% in Q2 2020 and reach 130% in Q3, before declining.
  • These ratios are well in excess of the 80% threshold above which the Bank for International Settlements has shown that national debt intensifies the drag on GDP growth.
  • Looking at debt multiples of disposable income, that measure will climb from 176% in late 2019 to well over 200% through 2021. 
  • Moreover, CMHC is now forecasting a decline in average house prices of 9% – 18% in the coming 12 months. 
  • The resulting combination of higher mortgage debt, declining house prices and increased unemployment is cause for concern for Canada’s longer-term financial stability.

To which I say, with all sincerity: WHO CARES?



Every single measure the Federal Government and most, if not all, of the Provincial & Territorial Governments have undertaken since the onset of the Covid-19 pandemic have been to support, bolster, encourage, alleviate, aid, assist and otherwise help Canadians in any kind of housing, financial, health or other crisis that might harm them or destabilize them and the Country.

The Bank of Canada undertook three (3) significant rate cuts to their overnight lending rate in quick succession after the declaration of a State of Emergency and the subsequent Wall Street & Bay Street collapse landing at an historic low of 0.25%. 

They also initiated a program of quantitative easing for the first time in history to the tune of approx. $5-billion per week with the purpose of:

"Our immediate goal is to help Canadians bridge this difficult period by making credit affordable and available. As many economic activities are temporarily shut down, companies rely on credit to continue to pay their employees, and households need credit to continue to meet their basic needs. But they may be unable to borrow if financial turmoil curtails lending activity."

As well, the Federal Government through CMHC began a mortgage buy-back program from the Big Banks to the tune of $150-billion.

Furthermore, the OFSI changed a number of their rules affecting banks which in turn impacts borrowers more favourably. And, after a false start a few month's back when they announced and then rescinded their intention to lower the mortgage stress test, they have once again indicated that they will be "tweaking" said test in the coming days and weeks by as much as at least 5-basis points. Albeit not much, it is in in fact still a reduction and a supportive measure to assist Canadians in buying real estate.

Well, hot on the heels of the above meeting of Mr. Siddall's with the Finance Committee, CMHC released numerous incendiary press releases and predictions culminating in their most recent Housing Market Outlook report.

The following is the introduction to CMHC's most recent HOUSING MARKET OUTLOOK report dated 27 May 2020 and which is just one of the many reports that CMHC regularly publishes. Although, unlike other reports, this one is additionally labelled a "Special Edition"!(1)

The COVID-19 pandemic has introduced unprecedented uncertainty to economic and housing outlooks. 

 

This special edition of the Housing Market Outlook presents an account of the preliminary economic impacts of the pandemic. It delivers the insights you need in times of great uncertainty. The forecast examines a wide range of plausible scenarios for housing indicators including: 

  • housing starts 
  • home sales
  • house prices

Housing Market will see a historic recession in 2020 


The national and provincial economic outlook is subject to considerable risk given the: 

    • rapid evolution of COVID-19 and duration of the pandemic
    • speed at which the global economy and financial market are reacting
    • significant regional disparities in economic impact on housing markets

Canada will experience a historic recession in 2020 with significant declines in all housing indicators. Severe loss in household income and employment, and migration at a standstill contribute to unprecedented falls in construction activity and sales. The decline in housing activity is compounded in oil producing provinces as the energy sector is also experiencing historic lows. 

 

Following declines in 2020, housing starts, sales and prices are expected to start recovering by mid-2021 as the pandemic recedes. Sales and prices are still likely to remain below their pre-COVID-19 levels by the end of 2022. The precise timing and duration of the recovery is highly uncertain, as the trajectory of the pandemic is not known. 

 

Housing starts will decline

 

Residential construction activity slowed in many provinces, particularly in Quebec and Ontario driving a decline in national housing starts in 2020. 

 

Housing starts will likely see a decline of 51% to 75% in the second half of 2020 from pre-COVID-19 levels before starting to recover in the first half of 2021 as economic conditions improve.

 

Housing starts are not expected to rebound to pre-COVID-19 levels by the end of the forecast horizon. 

 

We’ll see a drop in existing home sales 

 

Large declines in employment and household disposable income will cause large reductions in demand for existing homes in 2020. Listings will fall in response to weaker demand, placing significant downward pressure on existing home sales. 

 

Sales are likely to register a decline in the range of 19% to 29% from their pre-COVID level before beginning a slow, gradual recovery in 2021. Our forecasts indicate that sales are not likely to recover to pre-COVID-19 levels by the end of the forecast horizon. 

 

Housing prices will dip but recover in 2021 

 

Our forecasts indicate that the average MLS® price will decline by 9% to 18% from its pre-COVID-19 level. Prices will begin to recover in the first half of 2021. 

 

Provincial Housing Market Outlook declines 

 

Housing indicators in Alberta and Saskatchewan are more heavily weighted to the downside than for other provinces. The negative impacts of lower oil prices put additional pressure on housing markets in these provinces. 

 

Manitoba is likely to see smaller declines in housing indicators than the other Prairie Provinces, being affected less by oil prices.  

 

The outlook is broadly similar for Ontario, Quebec and British Columbia. However, British Columbia is likely to see relatively smaller declines in housing starts in 2020 and 2021, while Ontario is likely to see larger declines in sales and prices in 2020. 

 

Atlantic provinces will see relatively smaller declines in housing indicators when compared to other regions, as economic conditions will decline modestly compared to other regions. Due to the highly uncertain forecasting environment, we continue to closely monitor city-level housing markets and will provide additional analysis and guidance once sufficient data is available. 

 

This is from the Housing Market Outlook series. 

 

After floating the idea of doubling the down payment required to obtain a high ratio insurance backed mortgage from 5% to 10% (effective 1st July 2020), the CMHC and Mr. Siddall made this very punitive change by single handedly making it impossible for many if not most Canadian's to buy a home now and for the foreseeable future...thereby creating the circumstances that lead to a self-fulfilling prophecy in terms of their earlier forecast.

THE QUESTION THAT BEGS THE MIND IS WHY?

Why did CMHC and Evan Siddall take such punitive action now when every other measure (even before Covid-19) was created to aid citizens to buy homes? Why make it harder next to impossible? Why push those homeowners on the edge off the cliff intentionally? Why cause a likely economic disaster when everybody else has been trying to circumvent or out-rightly prevent one?





NOTE TO READERS: I undertook this blog post to address some matters concerning the recent actions of the CMHC under Mr. Evan Siddall that seem antithetical to both real estate and the short-term financial well-being of both this Country and it's Citizens. I am, unfortunately, struggling to get it finished, but it is a larger post that I anticipated and as a result, it is far from complete. Therefore, I would like to apologize to all of you who are reading this and beg for your forgiveness and permission to edit and develop this posting ongoingly and in real time. So, be sure to come back a few hours to a few days later and see where & how the post has evolved. Thank you for your patience! SV