Condominiums at Square One Distrikt . Will house prices fall by 50% in the course of economic recovery? The Canadian Mortgage and Housing Corporation (CMHC), the federal housing regulator, issued a warning.Please Visit: Condominiums at Square One Distrikt to Get Your VVIP Registration Today!
The latest risk assessment conducted by the agency shows that when the Canadian economy gradually recovers from the pandemic, it could lead to unemployment as high as 25%, which in turn causes house prices to fall by nearly 50%.
CMHC describes Canada’s economic recovery as a W-shaped recovery: the recovery starts quickly after the recession, but then quickly falls into another downturn, and then recovers again, looking like the letter “W”.
CMHC said in its report that the W-shaped economy recovered from the pandemic would pose a challenge to the solvency and capitalization of CMHC without government support.
Of all the cases in which CMHC conducted stress tests, this situation may be the most incredible, but the impact will be the most severe, the report said.
The CMHC found that a W-shaped recovery would lessen this severity and make it easier to manage with government support, which could only lead to a 24 per cent drop in unemployment and about 32 per cent in house prices.
In a recovery that is not W-shaped, but U-shaped, the recession will gradually improve, with the highest unemployment rate approaching 15% and house prices falling by nearly 34%.
But CMHC stressed that these scenarios are not predictions or forecasts, nor are they intended to show Canadians what will really happen in the future. But in any case, such a risk assessment will help reduce future risks.
Although CMHC did not say to forecast future house prices, at the end of May last year, the CMHC warned that if the novel coronavirus epidemic continued to drag down GDP growth, Canadian household debt levels would reach a record and Canadian house prices would fall 9 to 18 per cent over the next 12 months.