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The economist stood by the agency’s previous forecast that average house prices could decline by up to 18 per cent, noting they had nearly touched a 12 per cent drop in April and that many risks from the pandemic and other factors remained, although prices have rebounded since. “I don’t think we’re out of the woods, yet,” he said.
High household debt, a jump in deferred mortgages, the temporary nature of increased disposable income from federal programs to alleviate pandemic job losses and the pandemic’s impact to delay long-term decisions are all weighing on the market, Dugan said.
“I’m not convinced we have sustainable basis for housing demand with the economic disturbance that’s going on related to COVID-19 and that’s why I stand by the forecast,” he said. “If I’m wrong on the timing of the trough, that could happen, but I certainly believe in the overall trend that there’s some scope for price decline, for weaker demand, and after that sort of resolves itself, eventually a recovery once we have a vaccine in place.”
The CMHC rated the overall Canadian market as moderately vulnerable due to the general weakening of housing market fundamentals such as job losses, despite lower interest rates and federal wage supplements.
Canada’s central bank slashed the benchmark interest rate to 0.25 per cent in March, as the pandemic took hold, from 1.75 per cent in January.
In its quarterly assessments, the agency considers overheating (when sales greatly outpace new listings), price acceleration, overvaluation and overbuilding (when the inventory of unsold housing is significantly above normal levels). Prices are rated overvalued after comparing them to factors such as personal disposable income, population and interest rates.
The agency’s first quarter assessment, released earlier this year, showed overheating and price acceleration remained in Toronto, Hamilton and Vancouver, and in the resale markets of Montréal and Moncton. CMHC cited overbuilding in Edmonton, Calgary and Regina. Vulnerability, or imbalances in the housing market, were deemed low in Ottawa, Winnipeg and the Maritimes. The Canadian market as a whole was also rated moderate in vulnerability then.
Special to Financial Post
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