The spat between Canadaâs government-run mortgage insurer and the countryâs residential real estate industry appears to have been a big misunderstanding over units of measurement.
Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., found himself accused by some in the industry of sowing panic with an âirresponsibleâ forecast that predicted a much steeper price decline than others.
But if the CMHC used the same measure as other forecasts, it would be predicting a decline in line with other forecasts, Capital Economics says â declines of between zero and 10 per cent, instead of the 9-18 per cent it offered in a report last week.
Watch: Bidding wars in a pandemic? U.S. house prices rising amid economic crisis. Story continues below.
CMHCâs forecast was for the average selling price â a number that fluctuates much more than the house price indexes other forecasts were using as their measure.
Many experts say the house price index â which makes an âapples-to-applesâ comparison of house price change over time â is a better measure of what is happening to the value of individual homes than the average selling price. That latter number can be impacted by a change in the mix of homes that are sold â such as a drop-off in high end sales, which often happens in economic downturns.
âBy our estimates, the CMHCâs forecasts translate into falls in the Teranet index, or like-for-like house prices, of between near-zero and 10 per cent,â Capital Economics senior Canada economist Stephen Brown wrote in a client note.
Brown noted that during the financial crisis a decade ago, the average selling price in Canada fell 18 per cent â the same amount as the CMHCâs worst-case scenario now. But the Teranet and MLS house price indices only fell by 6 per cent and 7 per cent, respectively.
Notably, the average selling price in Canada has already fallen more than the CMHCâs best-case scenario of a 9-per-cent drop; it fell nearly 11 per cent in April alone.
âThat means the average selling price in April was already lower than the CMHCâs best-case forecast for the end of this year. So, despite the negative tone of its report ... the CMHCâs best-case forecast now implies average house prices will rise (from this point),â Brown wrote.