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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