Fitch, Another Big Three Credit Agency, Forecasts Falling Canadian Real Estate Prices

Canadian real estate prices just got another negative forecast from a Big Three credit rating agency. Fitch Ratings released its Global Housing Outlook this month, which contained a forecast for Canadian home prices. The firm generally sees home prices falling next year, as well as the delinquency rate nearly doubling. 

Canadian Real Estate Prices Forecasted To Fall 5%

The Big Three ratings firm is forecasting a relatively small price drop for Canadian real estate. Their base case sees a drop of 3 to 5 percent in 2021, following 2020 finishing with a 7 percent increase for the year. The decline would mostly wipe out this year’s gains, before returning back to 2020 levels in 2022. The forecast is one of the more modest, but only includes a base case, without a best and worst case. This forecasted decline is similar to National Bank of Canada’s base case published earlier this month. 

Canadian Real Estate Prices Drop Due To Affordability, Lower Rents

The firm attributes the decline to lower demand caused by declining rents, slow immigration, and stress tests. Analysts from the firm note rents have declined by 10 to 15 percent in major cities, making ownership less attractive. Immigration for the first seven months of 2020 were lower than usual, and they expect this to persist through 2021. They note B20 is problematic due to harder to qualify loan criterias. However, they are only looking at it from the perspective of lenders. From the perspective of consumers, the issue is really that young people are unable to find a suitable sized down payment at these inefficient prices levels. 

Canadian Mortgage Delinquencies May Double

The firm also expects Canadian mortgage delinquencies to rise, but they don’t see a meltdown style event. After payment holidays end in 2021, the firm expects delinquencies to rise to 0.35% to 0.50%. They believe this will be due to elevated unemployment, putting further pressure on prices. They also add issues with the self-employed sector, which is about 15% of Canada’s workforce, noting they have been hardest hit by the pandemic. 

Fitch’s forecast is similar to many others, but doesn’t share a range of outcomes based on variables. The price drop is slightly higher than RBC’s forecast, and around National Bank’s base case scenario. As for mortgage defaults, they’re forecasting almost double the rate currently seen. It’s not quite at levels RBC or the Bank of Canada have forecasted, but is a substantial climb. Typically defaults only occur when liquidity can’t be achieved. Since liquidity is usually generated by lower prices in a high unemployment scenario, defaults may be further deterred by faster falling prices.

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  • Kathleen Thomson 3 years ago

    5% national, so that’s probably -10% in Toronto and +5% in Montreal.

  • Jamie 3 years ago

    5% isn’t much. Not worth paying attention.

    • Trader Jim 3 years ago

      It’s actually the whole downpayment for some people.

      Only in Canada could a plus/minus $50,000 per million not be considered much, when the median income is only $80k.

    • The Truth Shall Set You Free 3 years ago

      That’s 5% average. So places like the GTA and GVA can drop by 40% while everywhere else prices increase thus resulting in the 5% drop they mention. Very doable and based on what’s been going on outside of the GTA (how home prices have increased by 25% or more in such a short period of time) this isn’t news as it’s already being witnessed.

      • Sam 3 years ago

        Believe me I’d love for the prices to drop 40%, but numbers don’t work that way lol… Assuming 5% drop nation wide, 10-15% drop for Toronto might be reasonable!

        • neo 3 years ago

          Even at 15% it won’t put a dent into prices at all. 416 and 905 are up like 20% so far this year. Only 416 Condos lagging.

          Call me when we get back to before the spike…So 2015-2016 prices.

          • Ottawa Resident 3 years ago

            @Neo 15% would be almost the whole downpayment on an uninsured place. Canadians are really bad with math.

        • The Truth Shall Set You Free 3 years ago

          I agree with you. I was simply pointing out that places like the GTA will drop disproportionate to the rest of the country due to the fact that home prices in the city had climbed the most over the last 15 years. That said however don’t knock the idea of a correction of more than 20% and up to 40% if not greater. The rapid drop in rental prices means that people who over leveraged themselves are in dire straights. Fact is even with a vaccine it will take over 2 years to roll out meaning by the time they finally get this under control there will be an incredibly high unemployment rate as many employers will have gone the way of the Dodo. Even large companies aren’t safe from bankruptcy. Look at HBC for an example of what will come if this goes on much longer. Fairly certain if they don’t win their lawsuit with the Ontario government allowing them to open right now that HBC is done. Sad state of events we’re in right now.

    • Doomcouver 3 years ago

      This is just real estate pumper capitulation to the fact that the market is massively overvalued and clearly a bubble to any objective observer. The fact they think the correction will be over in 1 year’s time just shows they’re trying to paint the rosiest picture of what is obviously a very bearish setup for prices in 2021. The Canadian housing bubble probably can’t survive a 5% correction, there’s too much leverage, and baked-in price appreciation expections to withstand that kind of shock. I think it’s far more likely to cause a deflationary spiral and cause further price depreciation in years to come, but time will tell.

  • Oakville Rob 3 years ago

    GTA people in $2M houses bought and financed $350,000 houses. The only Canadian they can sell it to is someone else who rode the rocket. Not a single Canadian can enter the housing market and buy that house from them without saving $100,000 cash (5%) down – try that in the GTA – and float the $9000 payment on a $1,900,000 mortgage. If you think $2m is too high, cut it in half. It still doesn’t work. Any argument to the contrary is not realistic unless you’re a unicorn. IMO the rocket has run out of fuel and will crash back to earth. The only alternative is that we all add a zero to our income (not going to happen, because it hasn’t happened yet) and pay $100 for a quarter pounder meal deal (may happen soon), or sell the entire real-estate market to foreign buyers and money launderers while Canadians become homeless, forced out by property taxes that exceed their original mortgage payments .

    • Jim 3 years ago

      Mortgage brokers catering to new Canadians and foreign buyers. They will lend to anyone with a pulse. They originate over 1/2 of all Canadian mortgages.

      • Bob 3 years ago

        IMO: CBDC, UBI, ‘stake holder capitalism’ (ie capitalism for the rich), etc. – the great reset/‘green new deal’ – we will see a complete economic restructuring, serious attack on middle class (ie affluent lifestyles per WEF) which will lead to significant property tax increases, carbon demonization/taxation – overall reduced living standards and rentier class replacing home ownership. In essence, predicting future by referencing past patterns (ie post war) in my opinion will prove deficient. Central bank QE etc is the wild card and it seems likely a ‘correction’ has to occur at some point, but in Alice’s wonderland world of MMT (modern monetary theory), debt no longer matters?
        Voodoo economics.
        This all sounds ‘conspiratorial’ but it’s all in the mainstream if one is paying attention.
        There seems no safe harbour in these most turbulent of times. Change is coming like a tsunami and the high ground is taken up by the super rich.

    • neo 3 years ago

      Or nothing happens.

      • Oakville Rob 3 years ago

        Very zen, but not likely. Wishful, certainly. Time will tell.

    • SH 3 years ago

      Take a bow, Baby Boomers! A fine job you’ve done with this country.

      Watch them sneak out the back door to their Florida retirement homes while the country burns in the wreckage they created.

      • Grt 3 years ago

        You shouldn’t blame the baby boomers for benefiting from the appreciation of their home which they worked hard to pay for. Instead blame the banks, government policy, foreign investors, money launderers and speculators.

  • Josh 3 years ago

    I’m currently house shopping. Houses are getting multi offers and there are piles of people viewing. So the buyers are there and likely will still be there in 2021, I don’t see a decline in Toronto happening unless there is a huge increase in supply and big drop in demand.

  • Fred 3 years ago

    If you put Printing money by Bank of Canada in the equation then you will see the price going up another %20 to %30 not down

    • Oakville Rob 3 years ago

      Sure, and $100 for a McDs combo and the average Canadian household income is $750k, all courtesy of printed money. But I’ll bet you won’t get that pay increase.

  • Steve 3 years ago

    Honest reply here… the market is massively overvalued and one day it is going to take a bath of historic proportions… but while we have effectively 0% interest rates things will tick along… they have kicked the can down the road. I’m gen x, and we’re use to bring screwed over… , but if I were a millennial I’d be marching in the streets about what they are doing to my future at this point… hell most of gen x would join you.

    • SH 3 years ago

      Screwed over? Gen-X? Yes it must have been horrible for you to buy dirt cheap homes at the cycle bottom in the 90s. Unless you were one of the very youngest Xers (79-81).

      • Steve 3 years ago

        The insiders guide to your neighbourhood… boomers have all the big houses … early gen x have the big / medium sized houses… late gen x have small to medium. Late gen x had a narrow window to get married and buy a house before 2008 inflated the market to crazy levels (spoiler alert, I got married in 2010 so yes, just as screwed).

  • fred 3 years ago

    As long as Bank of Canada pumping money in the market and buying bond , like crazy , the housing market goes up as before.

  • Simon J Hudson 3 years ago

    A forecast is nothing more than a guess. Everybody loves to guess and then look back and show you how right they were.

  • Housing Reform 3 years ago

    Sadly, due to Modern Monetary Theory – govts will not allow a significant correction to take place. Instead, they are devaluing currency at a record rate.. it was houses that went up first, we’ll see it in fuel prices, food etc. Next and then LASTLY wages will go up. Housing are getting more expensive, sure but actually money is getting cheaper and is losing its buying power at record rates. Powell et all have said that they don’t care about inflation, their main goal is employment. Don’t hold cash, buy real estate, commodities, stocks, even Bitcoin….

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