Canada

CMHC Head Warns Homebuyers To Question Motives of Those Saying Prices Will Rise

The head of Canada’s national housing agency rang off yet another warning to homebuyers. Evan Siddall, the head of the Canada Mortgage and Housing Corporation (CMHC), warned people to question the motives of anyone that says home prices will rise in the near-term. He does so before rattling off a list of economic pressures against the market. The tweet is self-explanatory to his primary demographic of banking and finance experts. However, it’s less so to the average millennial and homebuyer – so let’s unpack it with some data points.


 

“with our economy in slow motion”

Canada’s economy has been slowing in growth for a few quarters, even before the pandemic. It got much worse after the economic lockdown. Stat Can reported GDP fell 2.11% in Q1 2020, when compared to the previous quarter. Pre-pandemic growth in Q4 2019 also wasn’t very impressive though, coming in at the weakest level since the 2015 oil crash. With the exception of some noise in Q2 2019, GDP growth has been trending lower since the back half of 2017. This view gets even worse if you’re looking at the issue on a per capita basis.

Canadian Gross Domestic Product

The quarterly change in Canada’s seasonally adjusted, gross domestic product (GDP).

Source: Stat Can, Better Dwelling.

“oil being given away”

Oil began trading at a negative price, something a few systems didn’t even believe was possible. That is, people actually paid people to haul the value of their oil contracts away. It was a newsworthy, but relatively small blip, but the value of crude and energy products has been slipping for a while. Stat Can’s index for April fell 21.96% from the previous month. That puts the value 44.79% lower than the same month last year. Prices in this segment peaked in June 2008, and have been seeing lower and lower peaks ever since.

Canadian Energy and Petroleum Product Price Index

The indexed price of energy and petroleum products in Canada.

Source: Stat Can, Better Dwelling.

“millions of Canadians on income support”

Canadians use various forms of income support, but nothing highlights issues like CERB. The temporary emergency income support rolled out due to the pandemic had 6.7 million applicants by mid-April. At the end of May, the Canadian government estimates 8.29 million unique applicants. Considering Canada’s labour force is just 18.6 million, that’s 44.5% of them requesting emergency aid. Even if unemployment is still in the low teens, this implies a lot more people aren’t working – and quite possibly won’t have work to go back to.

CERB Unique Applicants

The number unique applicants for the Canada Emergency Response Benefit (CERB).

Source: Government of Canada, Better Dwelling.

“a greater % of mortgages not being paid than we’ve seen since the Great Depression.”

Canadians are requesting relief from their mortgage payments at a breakneck speed. The CMHC itself estimates 12% of insured mortgages are currently on payment deferral, and they expect this rate to rise to 20% by September. More generally, the CBA estimates the big Canadian banks had 500,000 requests looking for mortgage payment deferral in the beginning of April. By the end of May, the handful of large banks  had approved 721,000 mortgage payment deferrals. This represents about 15% of all mortgages on their books, and that number is still climbing.

Most analysis I’ve come across saying prices will climb, now depend on excluding a large segment of people. They’ve chosen to say those impacted by recent employment events, just weren’t in the market for a home. That narrative becomes increasingly harder to buy, considering we’re now at the point where almost half of the population has demonstrated being impacted. Even if the households impacted are all low income (which they aren’t), it’s worth remembering that one person’s spending is another’s income.

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14 Comments

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  • Mortgage Guy 5 months ago

    The people that know prices will fall are too busy trying to explain to their clients they should sell their investment properties before it becomes widely known.

  • Ahmed 5 months ago

    Oil is the only consumable we expect to go up in price forever. The blip from 2008 to 2018 was just that – a blip, and a bubble. Prices should return to its long-term sustainable level. This seems bad, but it’s actually stimulus, since people will be spending less on fuel.

  • Mtl_matt 5 months ago

    It only goes up, like the stonk market!

    • Brad 5 months ago

      After the pandemic, the only thing that will have value is real estate.

    • kwo 5 months ago

      haha money printer go brrr and stonks go zoom!

  • Manoj 5 months ago

    The general propaganda the Real Estate Brokers and their agents (glorified aka Realtors) are purporting to the buying public is there are so few listings so a pentup demand is building up and therefore prices are remaining stable and infact rising and multiple bids is once again becoming common.

    What this commissions driven home selling machinery that has been given a mandate by the governments for over 40 plus years to create a house price illusion and are the cause of the situation the entire country has plunged into the prevailing situation.

    I am not too sure as to why the head of CMHC has left it so late to come out and voice his concerns. I take it his hands were tied and could not speak out about the moral hazards the governments were leading the unsuspecting public. But now that he is nearing his final days to retirement in paradise with his life long guaranteed defined tax payer funded pension and benefits. He has decided to speak out. The same thing is true of the out going BoC head, he spent his entire working life in the Central Bank, and not once did he avert the economic crisis. No never!

    This is a great opportunity for the public to wake up and think for themselves and learn to question everything that is being said by the media and these Crown mandated agencies.

    Instead of twitting such warnings, why has he not put a STOP to guaranteeing all loans that are risky and without a minimum 20%. CMHC should shut its doors and sell their mortgage book to private lenders. It has lived its usefulness and has become a liability to the tax paying public.

  • straw walker 5 months ago

    Real estate agents are no different than stock promoters..They are only interested in protecting their industry, not the well being of individuals

  • Tom Wolfe 5 months ago

    My father’s statement of incredulity was ‘if pigs could fly’.

    I’m no historian, but 1935 to 1955 was not like today. The great depression was stopped by the war effort. Men went to war and were paid by the government, women entered the work force for the first time. Everyone who wanted something to do could get paid to do something at home or oversees. Then in the wake of all that productive-destruction the world had to rebuild or replace everything that got destroyed, including entire cities. In 2020 we are destroying bags of chips, and wearing holes in our couches, the destroyed assets such as livelihoods and business will not be rebuilt or restored by government.

    CMHC guy still didn’t mention the rail shut down that halted shipping and commerce in Canada for several weeks in 2020. That would be a major event in any other year, but it was tsunamied by COVID19.

    No. House prices aren’t going up. Anywhere. Unless those houses are purchased by someone who needs an explanation, defended by a diagram, as to why pigs can’t fly.

    The Pink Floyd cover of the flying pig, ironically, was actually a balloon that eventually popped.

  • Ed 5 months ago

    Realtors don’t just drink the Koolaide, they sell it. Of course they take issue with a reality check. of big concern right now is the probability that the government will intervene to keep this gasbag afloat. Much safer to let it settle naturally now, before it becomes even bigger of an issue.

  • zalzon 5 months ago

    CMHC is deflecting attention from the fact that it is the cause of the real estate bubble.

    What’s the point of sounding an alarm after having run real estate prices through tthe roof by putting taxpayers on the hook for sub prime mortgage defaults by the hundreds of billions?

    You can’t be warning against moral hazard when you are the cause of it.

  • MarquoPolo 5 months ago

    Real estate prices will go up for the same reason the stock prices are going up. People who only look at economic fundamentals are missing important clues on where the markets are headed.

    1. Quantatative easying: money printing devalues our currency and cause inflation. For people who have the money, they want to protect themselves from inflation/devaluing so they invest in stocks, real estate, gold, or other types of investments. Remember, the top 10% control most of the money, and are unaffected by unemployment. The fact that government is handing out CERB payments only reaffirms to them that their previous investment in real estate is potentially more secure than other forms of investments since people will have the money to still pay rent/mortgage.

    2. Inflated CERB collection data. There is already plenty of evidence that many people are taking advantage of the CERB payments, ie, not eligible but still collecting. These people inflate the CERB stats making things look worse than the real ground truth. A lot of people who received CERB, this is more income than they had when they worked part-time or in the gig economy. While savings such as no day care, travel, mall visits, etc all add up to quite a bit of accumulated spending power.

    3. There is pent up demand, people who wanted to buy and couldn’t due to COVID-19 will be very active after the restrictions are listed. Many people who retained their job thru telework, even saved up quite a bit of money for a bigger down payment. Innovation in virtual open houses & showings, may open the market even more to potential buyers continents away.

    4. Low interest rate. If one choose variable rate, it can be had for 1.5%, or 2% for fixed, this gives people plenty of incentive to buy now. Usually prices go up when interest rate drop, in this case, price has not yet gone up, so people will see this as a good opportunity to enter before the economy recovers and the prices go up together with the interest rate.

    5. Hong Kong. While immigration numbers are dropping, but Hong Kong is going through some serious turmoil with China implement a new national security law. The 300,000 Canadian passport holders in Hong Kong may very well choose to move back to Canada for good. And because they hold Canadian passports, there is nothing stopping them from returning. If anyone remembers the housing market of big Canadian urban centers just before Hong Kong’s return to China in 1997, a similar pattern may well repeat itself.

    All these factors will drive up demand, which will more than offset the wariness investors have of the now uncertain future of Airbnb as a result of the pandemic.

    • Jin 5 months ago

      I’ve got news for you: If you’re Chinese and rich in Hong Kong, none of this bothers you to the point of relocation. It’s low income households in Hong Kong that have an issue.

      Those empty homes everyone are complaining about were already bought, genius.

      • MarquoPolo 5 months ago

        Not sure where the anger is coming from. But I will respond to your statements. Of the 300,000 Canadian passport holders in Hong Kong I believe this demographic has more granularity then just either rich or low income. Again, think back to 1997, Hong Kong families from all different income levels immigrated to Canada. I believe they will again, especially since a lot of them already have Canadian passports. For middle income Hong Kong families, who have been adversely affected by all the rioting taking place in Hong Kong and who don’t already have overseas passports, they may seek to come to Canada as well.

        Your send statement on empty houses seems to not address anything I was talking about. However, the fact that all the empty houses are already bought just means supply of housing is limited, since there are not housing readily available for immigrant families to move into; that means demand > supply, which also translates to higher prices.

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