CIBC: Challenges To Canadian Real Estate Will Be “Coming In 12-18 Months”

One of Canada’s largest banks sees turbulence for real estate markets, but doesn’t expect it this season. A CIBC research note released earlier this month sees real estate markets temporarily frozen. Once the economy begins movement again, and mortgage deferrals expire, they see things starting to change. Once this happens, the bank is forecasting lower prices, especially for condo apartments. Markets should expect to see a shift in sentiment evolve over the next year.

No V-Shaped Recovery For Canadian Employment

No surprise, and an issue that’s been cited in most forecasts – employment is going to have the biggest impact. The bank notes the unemployment rate went from 5.5% pre-crisis, to 13% at writing – and will likely inch higher. They echoed the belief most job losses will be temporary, and the market will see the rate drop to 8% next year. A 200 bps increase is all that’s needed for unemployment to become recessionary. For this reason,  the bank is forecasting a recessionary environment post-pandemic. This is expected to impact both demand for housing, as well as the ability to cover home payments.

Canadian Unemployment Rate

The Canadian rate of unemployment in February, and CIBC’s forecasted peak and 2021 average. A 200 bps increase to unemployment is considered a recessionary environment.


Source: CIBC, Better Dwelling.

Canadian Real Estate Demand Will Slow, And Supply Will Rise

The bank is forecasting demand will slide, and supply will rise over the next few months. They expect “large swings,” resulting from various factors. High unemployment levels and reduced investment are expected to be the primary drags on demand. As for the increase in supply, it’s a combination of issues.

The bank expects new construction and forced sales to contribute to supply. A record number of completions were expected this year, above last year’s 190,000 units – including 29,000 high-rise condos in Greater Toronto. Due to reduced construction during the pandemic, most are expected to be delayed until next year. Forces sales will also start to become a thing next year, as mortgage deferrals expire. It’s probably safe to assume not all forced sales will be the result of defaults. Graceful exits from negative cap investment units, with bills too high, are also a thing.

Canadian Mortgages In Arrears

The historic arrears rate for mortgages at large CBA member banks, and CIBC’s forecasted rise.


Source: CIBC, Better Dwelling.


Canadian Real Estate Problems Will Be Seen In 12 To 18 Months

Due to all of these delay factors, the bank sees issues materializing “in the coming 12-18 months.” Reduced activity and incomes are expected to drop prices 5 to 10 percent on average. They further added, “high cost units in the high-rise segment of the market seeing the most notable price declines.”

CIBC’s housing timeline  is similar to most recent institutional forecasts. The 12-months until impact is a little longer out than the CMHC’s bottom in 12-months call. In terms of prices, this is one of the more bearish forecasts for Canadian real estate – especially for a bank. It’s also the only bank to connect employment and housing, as well as call out high flying condo apartments as a vulnerable segment.

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  • Terrance 4 years ago

    Pressure is going to be felt in more like 6 months. They only give mortgage deferrals if you have no other money in your accounts. 700k mortgage deferrals, and the market isn’t even pricing in 10% of those people have lost their job?

  • Ben O'Toole 4 years ago

    Refreshing to see a bank acknowledge having an income is a requirement for being able to participate in home buying.

    A lot of mortgage brokers in the GTA have been saying people are trying to get pre-approval on CERB, trying to use their old salary, and openly stating they aren’t sure if they’ll be able to go back to their job.

  • straw walker 4 years ago

    In Vancouver detached houses are going to take a hit in 6 months as these mini real estate empires with 4 or 5 houses, based on heloc loans being financed by airbnb, and unpaid rents will have to be sold..

  • Ghl 4 years ago

    Sell now while the weather is nice and price have not crashed yet.

  • Old Nick 4 years ago

    People the decreases in prices are already here in Victoria B.C. I see it going on in real time, check out how much rents have crashed… This is a leading indicator to where things will be.. Hold on tight and buckle up.

  • Prostak 4 years ago

    How 14% will drop the house prices only 10% is beyond any understanding. The prices of the market should retract to 1985 levels (just simple fib retracement) in order to continue to healthy uptrend in the next 20 years. For a crash we might see 1940 – 1960 levels.

  • Manoj 4 years ago

    These bank economist and talking heads have clue and their models are all fake because the numbers they use are all imaginary (Sophistry).

    You just have to look at the COVID-19 stats that were released by Neil Ferguson from Imperial College London. 2M deaths and US and 1/2 M in UK. Only to later admit that he got the figures wrong when challenged. But collateral damage that occurred to the world economy because of the decisions that were made by UK, USA and Canada for the abrupt shutdown and quarantining even the healthy populations and kept at home.

    Don’t follow any of these stats that these Academics produce, they have no clue and can be debunked very easily.

    Firstly, the people who put out these Real Estate stats have no clue about how the Real Estate market functions. And this is true right from BoC, CMHC, CREA and their members (realtors). All they do is pen pushing writing up doggy contracts which are anti-consumer friendly and only protect the commissions of the realtor industry and the sellers. The Buyer has no protection.

    They fail to realize that COMMERCE is not like electrical, flick and switch and you shut it down and when you give the order flick the switch and it will turn back ON.

    They fail to take into account, it took over 10years to get the unemployment to whatever fake number they hatched to be 5.5% before the shutdown began in March and shot up to probably more than 20% (real number) in less than 8 weeks.

    They fail to realize that you can’t simply get a drop in unemployment to 8% in 12 month’s when 50% or more of small busineses will never trade again. These people have no idea that it is these small busineses that create 70% of the jobs. And the PM and his friends has not given and financial help to them. Only their big businesses lobbyist who have been bailed out.

  • hing 4 years ago

    If this would be a regular recession with the logic of the past, then it would be deflation first to weed out the non viables and buy up resources on the cheap, and then inflation to erase the debt for those that could hold on, but really to benefit those that just bought on the low, to having have bought even lower. However this is no ordinary recession; there is something much more deeper cooking. We’ll just have to wait and see. It may or may not be pretty.

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