Act now and we can soften the economic blow
Evan Siddall has dared to go where his fellow regulators won’t.
The head of the national housing agency is talking publicly — and with numbers — about his forecast. He is warning of a deep plunge in housing prices, a spike in mortgage defaults and a strain on his own agency’s balance sheet.
The mountain of debt held by households before the pandemic was worrisome and now, Siddall says, it’s about to crush us.
It’s a troubling picture that points to a long, painful crawl out of the COVID pit.
But it’s not inevitable. A forecast is not fate.
What political and business leaders do now to relaunch the economy and put people back to work can have a large impact on how quickly we recover and how deep the economic pain lasts.
For now, Siddall, the CEO of the Canada Mortgage and Housing Corp., sees average housing prices declining by between nine and 18 per cent over the next year — worse in areas where crashing oil prices have taken a toll, and worse in Toronto and Vancouver.
At a parliamentary committee hearing this week, he warned of an imminent “deferral cliff” — thousands of homeowners who have arranged to defer mortgage payments until the fall, suddenly seeing their compounded payments coming due, their government support ending and not finding enough in their depleted savings to pay up. One fifth of all mortgages could be in arrears, he says.
Young first-time homebuyers are particularly vulnerable, and that makes Siddall suggest the CMHC demand a 10 per cent down-payment rather than the current five for insured mortgages.
Siddall is not talking through is hat. The CMHC is on the front lines of the economic collapse, deeply involved in taking on risk, ensuring money markets work properly, administering the commercial rent subsidy.
But his grim predictions are causing plenty of headaches behind the scenes at a time when the Bank of Canada and the finance minister have gone to great lengths to issue messages of reassurance — without issuing actual forecasts.
“I’m hopeful that we’ll manage through this,” central bank governor Stephen Poloz told reporters at a farewell roundtable marking the end of his seven-year term. He said economists have generally been “a little too dire” about a recovery and are underestimating the readiness of many companies to leap back into action once they get the green light from provincial and health-care authorities.
The pandemic has hit the services sector the hardest, but that’s the very sector that can turn on a dime, rehire and get back into business quickly, the central bank says. For sure, Poloz expects some businesses won’t make it to the other side, but he says he sees signs that many more new companies will rise from the ashes.
“I think we have some things to look forward to,” he says. But how about coming up with a proactive reopening strategy to make sure Siddall’s worst-case scenario doesn’t materialize and Poloz’s rosier prognosis does?
For now, we have premiers using a mysterious alchemy to open up their economies. Golf, yes. Baseball, no. Yes to stores with outward-facing doors but no to those facing hallways. Yes to manufacturers in Quebec, but their suppliers and customers elsewhere in the country? Not so obvious.
About a third of the country’s small businesses are now operating, up from 21 per cent a month ago, the Canadian Federation of Independent Business said Thursday. But the rest? They don’t know when it will be safe, or what to watch for beyond announcements from politicians that often seem haphazard.
There was an early attempt by federal and provincial leaders to agree to some general guidelines for reopening, but they don’t go beyond the basics of containing the virus and making sure workers stay safe.
Obviously, preventing the spread of the virus and being quick to jump on any sign of a second wave are crucial to maintaining confidence in the economy, inspiring investment and giving people the safe conditions they need to return to work.
But widespread testing and tracing are central to that very basic building block of a strategy and we’re not there yet — despite repeated promises from the prime minister on down.
The bigger questions about how to manage an economic comeback to minimize the pain have barely been touched, and it’s the answers to those questions that will determine how well we rebound.
Should we reopen the economy sector by sector? Should the most precarious sectors go first to avoid bankruptcy? Should younger workers go back first to protect more vulnerable older workers? Should regions with lots of hospital capacity go first, or perhaps regions with low numbers of cases? Should those who can work from home successfully just stay there until the pandemic passes, and what happens to productivity in that case? Is it fair to ask workers to return before childcare options are safe or before they can hop on a bus without fear?
Policy-makers have managed to cushion the economic blow of the pandemic with quick thinking and lots of money. A best-case recovery requires a parallel agility.