CMHC says it can bear 37% home price drop

TORONTO • Canada’s housing and mortgage agency can withstand home price declines of as much as 37 per cent and an unemployment rate of 24 per cent, results of a stress test released on Thursday by the government-backed corporation showed.

While acknowledging that housing has done better than forecast, the Canadian Mortgage and Housing Corp. (CMHC) said condominiums, which represent about 10 per cent of its portfolio, account for almost 70 per cent of underwater loans. Most of them are in the Alberta cities of Edmonton and Calgary, said chief risk officer Nadine LeBlanc.

CMHC, which insures mortgages with down-payments of less than 20 per cent, did not reveal the total number of underwater loans.

Canadian home prices rose 13 per cent in December from a year earlier.

“House prices have surprised most of us in the way they were forecast and the way we're witnessing them,” LeBlanc said on a media call. But “there's a lot of uncertainty with this pandemic.”

CMHC considered scenarios with varying levels of plausibility, from home price declines between 13.7 per cent and 37 per cent, and unemployment rates from 14.8 per cent to 24.2 per cent, it said in a statement. These would result in maximum insurance losses of $9.7 billion, which it can cover with existing capital, it said.

Only in an implausible scenario that assumes no government pandemic support, a 48-per-cent home price decline and 25-percent peak unemployment would CMHC fail to cover insurance losses, LeBlanc said.

The current unemployment rate is 8.6 per cent, down from a 13.7-per-cent peak in May.

CMHC is likely in the spring to publish new forecasts for its baseline scenario, currently based on predictions from early in the pandemic, LeBlanc said.

“We're not out of the woods,” she said. But “government income support has really mitigated ... what we were certainly seeing in our models in terms of outcome.”