Thin Ice
“Canada on thin ice as it heats up” by Macro Research Board (MRB) partners paints a bleak picture as reported by Mortgage Broker News.
They state the Canadian housing market is due for a crash and policymakers are staving off a massive deleveraging of the market, but emergency measures like CERB, the wage subsidy, and the deferral of mortgages, all risk compounding the problem. If the economy fails to make a rapid and stark restart when these measures end, MRB predicts a “deferral cliff.”
To the Extreme
“Extreme fiscal policy efforts are providing temporary support but it will prove difficult for Canadian policymakers to prevent a material housing fallout unless the domestic (and global) economy experience a V-shaped recovery and soon restore employment to pre-shutdown levels,” the report reads.
“Substantial oversupply and the lack of valuation support are major problems at a point when the housing market faces new and powerful headwinds. When homeowners are stretching to buy, they need to believe that their jobs are secured and that their home value will continue to appreciate. If these conditions are threatened, it can quickly weaken confidence and housing demand, causing prices to fall substantially. This was last seen in the U.S. and parts of Europe during the late-2000s. Canada is now at the cusp of heading down this path if employment and job security do not rebound strongly and shortly.”
The Future
We at BCRET do not see a “deferral cliff” for the market. There is still a good deal of demand. A lack of jobs will certainly soften prices, but we predict another cycle of flat to slightly negative growth, not a dramatic “the sky is falling” drop in prices.