Real estate experts reject CMHC’s bleak outlook

RBC Economics suggests worst passed in April as economy shows signs of starting back up

If, like most people in the Toronto region, your personal financial outlook depends largely on real estate, Tuesday was probably a bad day.

The Toronto Regional Real Estate Board reported a 67 per cent year-overyear drop in home sales in April. Average home prices remained at April 2019 levels, but they still trailed March’s GTA average price by about $80,000.

Also on Tuesday, senior officials at Canada Mortgage and Housing Corp. suggested that Canada’s real estate prices probably wouldn’t return to pre-recession levels until the end of 2022.

But national outlooks don’t necessarily reveal regional, municipal or even neighbourhood distinctions, and some experts say Toronto’s prospects may not be entirely bleak.

In its housing report Tuesday, RBC Economics suggested that the worst may have passed with April being the low point for housing resales now that the economy shows signs of starting back up. Health and job prospects will remain top of mind. But the risk of a sharp price decline is low in the near term, “except in Calgary and other harder-hit markets where property values were already depreciating before COVID-19,” the RBC’s report said.

Senior economist Robert Hogue acknowledged that the pandemic has wiped out all the usual forecasting guideposts. But it is significant that the housing supply has slowed along with

demand in the GTA. Sales were down 67 per cent in April, but listings also plunged 65 per cent.

“COVID didn’t create any imbalance in the market, at least so far,” he said. “That’s why when you look at the benchmark price it continues to be up on a year-over-year basis (10 per cent).” Benchmark prices are considered a superior gauge to average selling numbers.

In this case, the difference between the average and the stillincreasing benchmark suggests that what has shifted is the mix of houses that are selling, favouring the less expensive 905 region as opposed to the 416 areas, Hogue said.

On that front, “I’m not seeing any signs of significant weakness,” he said. “We expect some downward pressure of prices down the road but, as of now, the market still remains pretty well in balance despite the huge upheaval we’re going through.”

A full economic recovery will take a long time but, by May, if the economy opens up, buyers and sellers might start engaging with the housing market again, last April,” Alexander said. bringing an uptick in sales. Since April 17, “We’re starting

“I can see a period where you to see consumers return to real see activity pick up quite a bit estate websites looking at how more if a lot of pent-up demand they can transact in the current is being dissatisfied,” Hogue environment. Leads that are said. Prices could then fall off a going to agents are up,” he said. bit as unemployment remains The recovery will depend on elevated and more desperate how long the economy is locked sellers reaching the end of their down, said Phil Soper, CEO of mortgage payment deferrals alRoyal LePage. It recently reso push prices down. ported housing prices in the

But Hogue said he expects the GTA will end the year between economy will look more nor.5 and 1.5 per cent higher than mal into the latter part of next 2019. year with an unemployment On Wednesday, Soper said he rate closer to seven per cent — expects this is a crisis that will higher than February but in a be measured in weeks and zone where people feel more months, not months and years. confident about their job pros“The most likely scenario is pects. that the severe shutdown of the

“At that time the real estate Canadian housing market will market will operate a bit more amount to likely less than 12 normally,” he said. weeks,” he said.

Re/Max regional director Housing demand in Toronto Christopher Alexander said he is so high that when Royal LeP“vehemently disagrees” with age ran its pandemic planning CMHC’s suggestion that the scenarios, it predicted a 90 per housing market could take cent drop. But 35 per cent of more than two years to recover. transactions still moved ahead

In the current “uncharted terduring the lockdown, said Sopritory,” year-over-year compar-er. isons have little meaning, he Toronto, in particular, has the said. “We’re in a week-overbuilt-in buffer of more demand week marketplace right now. than supply, he added. You can’t compare this April to “That supply crisis evaporates during a crisis like this because demand falls and you’re going to lose some buyers. Are you going to lose more buyers than you had buffer? My guess is not. My guess is the combination of wage programs, tenant support programs and mortgage deferrals will be enough to stay within that excess demand buffer that we had in real estate entering the crisis.”

Canada’s financial institutions and their regulator have also provided a buffer against a market disaster. They have been preparing for a recession, lowering the risk of Canadian housing debt with internal controls and the mortgage stress test, which means recent buyers qualified for loan payments two per cent higher than they are contracted to pay their banks. That has pushed the mortgage default rate to less than a quarter of one per cent in Canada, lower in Ontario.

“You can have a default rate of double that and it would still be low by international standards,” said Soper.

CMHC noted that real estate debt accounted for three-quarters of Canadian household debt in 2019.

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