Click here to join our mailing list to receive the latest news and updates as they happen. Unsubscribe any time.
covid-19 economic impacts

Latest in Mortgage News: 2.5 Years for Home Prices to Make New Highs, Says CMHC

Canada’s housing sector indicators, including prices, sales and home starts, aren’t expected to return to pre-COVID levels until at least the end of 2022, according to CMHC’s latest Spring Housing Outlook.

“Following large declines in 2020, housing starts, sales and prices are expected to start to recover by mid-2021 as pandemic containment measures are lifted and economic conditions improve,” said the housing agency’s chief economist, Bob Dugan.

“Sales and prices are likely to remain below their pre-COVID19 levels by the end of our forecast horizon in 2022,” Dugan added, while admitting the “precise timing and speed of the recovery is highly uncertain.”

The report reiterated the agency’s forecast that house prices could decline anywhere from 9-18%, adding that oil-producing regions could see declines up to 25%.

Sales, meanwhile, are expected to fall 19-29% this year from pre-COVID levels due to job losses.

“Our forecast is a little on the pessimistic side…it is just a very tough time for the economy,” Dugan told BNN Bloomberg.

Meanwhile, many banks have forecast home price declines of closer to 10%, including CIBC economists who said earlier this month they expect prices to fall between 5% and 10% before starting to recover.

In a recent report, CIBC economists Benjamin Tal and Katherine Judge noted there are “clear early signs that the market is starting to wake up,” with activity in the first two weeks of May “notably stronger” compared to the first two weeks of April.

Delinquencies Expected to Rise

missed mortgage payments

Speaking of forecasts, TransUnion Canada has revised its 2020 Credit Forecast to account for the impact of COVID-19.

The credit monitoring agency now expects the national mortgage delinquency rate (those who fall 90+ days behind on their mortgage payments) to rise to 0.9% by the end of the year. That’s triple the delinquency rate of 0.3% reported in both Q4 2019 and the first quarter of 2020.

Non-mortgage delinquencies, such as credit cards, auto loans and other personal loans, are expected to top 6.3% by year end, a moderate increase from 5.6% in Q4 2019 and 5.8% in Q1 2020.

“The various government relief benefits, combined with deferral programs provided by lenders, can act to offset some of the COVID-related delinquency,” Matt Fabian, director of financial services research and consulting at TransUnion, said in a release. “However, each of these measures may contribute to long-term risk at a future time, as consumers will generally still be responsible for paying these deferred obligations at some point in the future.”

Reverse Mortgage Rates Hit a New Low

Equitable Bank loweres reverse mortgage ratesSeniors in the market for a reverse mortgage can now find a 5-year fixed term for under 4.00% for the first time.

Last week, Equitable Bankone of just two reverse mortgage providers in Canadalowered its reverse mortgage rates across the board by 15 bps, including its 5-year “lump sum” rate to 3.99%.

As the name implies, to take advantage of this lower rate, the borrower must withdraw the desired funds all at once, as opposed to borrowing in smaller amounts over time, which reduces interest costs. The rate for the standard 5-year fixed reverse mortgage is now 4.69%, down from 5.74% just one year ago.

Bank of Canada Expected to Leave Rates on Hold

The Bank of Canada meets this week (June 3) for the first time with Tiff Macklem as Governor. Markets and economists are in agreement that the Bank will leave its key lending rate unchanged at 0.25%.

“With the overnight rate already at 0.25% and the Bank of Canada’s recent guidance that it considers that the effective lower bound, a change in interest rates is unlikely,” said Alicia Macdonald, Associate director of Economic Forecasting at the Conference Board of Canada.

“Negative interest rates are back in the spotlight. Markets are pricing them in in the U.S., although not yet in Canada where the policy rate is still higher,” added Capital Economics senior economist Stephen Brown. “Overall, we do not think the Bank will pull its policy rate negative soon, even with a new Governor taking the helm.”

Overnight Index Swap markets are pricing in a 15% chance of an additional rate cut by the end of the year.