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This Week’s Top Stories: Canadian Real Estate Prices Expected To Fall, and Banks Set Aside Billions For Losses

Time for your cheat sheet on this week’s most important stories.

Canadian Real Estate

CMHC’s Canadian Real Estate Price Forecast Shows Big Drops In Ontario And BCCanada’s national housing agency gave a detailed breakdown of its real estate price forecast. Prices are expected to fall later this year, and continue into 2021. The forecast ends 2022 not quite recovered across the country. Different markets are expected to be impacted differently, with Ontario and BC projected to take big hits. Less overvalued markets like Quebec are expected to see much smaller price declines.
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Canada’s Big Six Banks Set Aside Over $10 Billion For Bad Loans, Up Over 300%
Canada’s Big Six banks are expecting billions of loans to go bad soon. Provisions for credit losses (PCLs) hit $10.92 billion at the Big Six, up 346.42% from the year before. PCLs are cash set aside for loans the bank believes have become unrecoverable. The sudden spike of increase implies banks see delinquencies to rise sharply soon.
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TransUnion Warns A “Severe” Scenario Likely In Canada, Mortgage Defaults To Jump
TransUnion, one of North America’s “Big Three” credit rating agencies, expects the mortgage market to deteriorate. Analysts from the firm look at over 40 metrics, including forbearance and credit. At this point of the pandemic, the firm sees a “severe” scenario playing out, with mortgage originations dropping, balances swelling, and delinquencies doubling. That’s the trifecta of bad news when it comes to mortgages.
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CIBC: Challenges To Canadian Real Estate Will Be “Coming In 12-18 Months”
One of Canada’s biggest banks sees the real estate market getting hit, but doesn’t expect issues for 12 to 18 months. The bank notes unemployment from 5.5% pre-crisis, to 13% currently. They expect unemployment to fall back to 8% next year, but that’s still at recessionary levels. This should lead to reduced real estate activity, with anticipated declines of 5 to 10 percent. The bank’s analysts further added, “high cost units in the high-rise segment of the market seeing the most notable price declines.”
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Most Of Canada’s Insured Mortgages On Deferrals Projected To Be Underwater Soon
Using the CMHC’s forecast, most of Canada’s recently insured mortgages are projected to be underwater. The CMHC estimates 12% of insured mortgages are now on payment deferral, and they expect this to rise to 20% by the end of the summer. The CMHC is forecasting price declines between 9 and 18% over the next 12 months. This would leave a considerable portion of insured mortgages with less than 1% equity in the next few months.
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Toronto Real Estate

Only 5% Of Greater Toronto’s New Homes Sold Last Month
The pandemic finally put the breaks on Toronto’s new home sales, which seemed previously untouched. There were just 771 units in April, down 80% from last year. This is a whopping 78% below the 10 year average. While the slowdown is expected, the decline in sales is much faster than the decline in inventory. This will lead to downward pressure on prices if it persists.
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4 Comments

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  • Juan Paulo Reyes Valderrama 1 month ago

    If after this pandemic, one of the most valuable assets will become the household (above any commercial real state) due to an immense population will be working form home; why you are predicting to see the prices to drop?

  • cris 1 month ago

    Because you are not thinking outside the box. Your situation might be different from others, but many people have lost their jobs and have a mortgage they cannot pay. Once the deferrals dry out, people will have to sell their houses in order to get rid of the loan. Since is not just tens, but thousands of people in that situation, the price will go down because:
    – The market will be saturated
    – Part of the population willing to buy is jobless
    – People with mortgages about to get in default, don’t have time to wait for the Market to recover and thus will have to sell their houses for peanuts (figurative of speech).

  • Rene Albert 1 month ago

    History tells us that after every major depression, pandemic, war, and recession the price of homes dropped substantially and in some cases did not recover for about a decade. Considering the gravity of covid19, I don’t think this time around will be much different…

  • David 1 month ago

    So many variables. Lots of intergenerational wealth transfer still to occur, likely continued immigration from Hong Kong and elsewhere as the world tumbles into chaos, a decline in housing starts due to Covid, and super low interest rates should support the markets in major cities I think. Will we see 20% drop? Possibly. But then prices have grown so fast in recent years that 20% would just be a “cooling off”, hardly a bear market. I’d be more worried about office/condo r/e but single detached residential? Still a sought after commodity.

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