05/28/2020 13:07 EDT | Updated 05/29/2020 08:03 EDT

Real Estate Industry Criticizes CMHC’s ‘Irresponsible,’ ‘Panic-Inducing’ House Price Forecast

"We are concerned that some damage may already have been done."

Nathan Denette/The Canadian Press
CMHC president Evan Siddall speaks to the Canadian Club of Toronto, Thurs. June 1, 2017. Siddall is taking criticism from real estate industry insiders over a pessimistic forecast for Canadian housing.

MONTREAL ― Members of Canada’s real estate and mortgage lending industries have lashed out at the head of the country’s government-run mortgage insurer for a forecast they say is far too pessimistic.

Evan Siddall, CEO of Canada Mortgage and Housing Corp. (CMHC), told a parliamentary finance committee last week that he expects the Canadian Real Estate Association’s (CREA) house price index to fall between 9 and 18 per cent in the wake of the COVID-19 pandemic. 

Despite criticism from industry, the CMHC reiterated its house-price prediction in a report issued this week.

Watch: How real estate will change after COVID-19. Story continues below.


That forecast also predicts home sales will be down 19 to 29 per cent after the pandemic, and it sees a massive decline in new housing construction of between 51 and 75 per cent, before starting to recover early next year.

These scenarios have many industry insiders and analysts worried that the CMHC could be panicking the public into a housing crash.

“The worry … is that the very public warning from the crown corporation becomes self-fulfilling,” Stephen Brown, senior Canada economist at Capital Economics, wrote in a client note.


Christopher Alexander, an executive vice-president and regional manager at Re/Max of Ontario Atlantic Canada, put it more harshly.

“Sellers simply won’t accept that kind of discount on their listings. A statement of this nature is panic-inducing and irresponsible,” he said in a statement issued Friday.

Re/Max, which has called for a 2.9-per-cent decrease in house prices nationally this year, noted that other experts aren’t forecasting such large drops, with most forecasts calling for a short-term decline of 5 to 10 per cent.

Siddall strikes back

Siddall took aim at his critics in the industry in a series of tweets coinciding with the release of the CMHC’s forecast.

“They’re whistling past the graveyard and offering no analysis,” the CMHC chief quipped.


Damage done?

Capital Economics’ Brown forecast earlier this month that the Teranet house price index would fall 5 per cent, but would stay below its peak levels “for years” as he expects there to be drag from lower immigration and higher debt levels.

But the CMHC’s forecast may have changed the situation, Brown argued.

“We are concerned that some damage may already have been done. As the history of boom-and-bust cycles shows, individuals’ expectations play a big role in how house prices develop. 

“With the CMHC’s alarming forecasts covered by all the major news outlets this week, some Canadians have probably become far more concerned about prospects for the housing market.”

A consumer confidence survey taken in the week ending May 22 found that confidence in the housing market is the lowest on record.

The Bloomberg-Nanos consumer confidence index for real estate was 9.89, out of a possible 100. Any score below 50 suggests that more people are pessimistic than optimistic about the market.

That came even as Canadians’ confidence in other parts of the economy began to rebound. The overall consumer confidence index rose to 39.32 from around 37 four weeks earlier. However, that is still close to the worst level in records going back to 2008, worse than at any point during the financial crisis a decade ago.

Nanos Research
The Bloomberg/Nanos index of Canadian consumer confidence has been recording its lowest levels ever amid the COVID-19 pandemic.

Siddall also warned that Canada risks falling off a “debt deferral cliff” this fall, when homeowners will have to start making payments again on hundreds of thousands of deferred mortgages.

According to the Canadian Bankers Association, some 716,000 Canadian mortgages, or some 15 per cent of the total, are now in deferral, and 391,000 credit card accounts are in the process of being deferred.

But many in the industry believe the strength of Canada’s housing markets going into the crisis will pull them through the other side. 

“Markets are in a better position than people think to absorb that,” CREA chief economist Shaun Cathcart told the Financial Post.

Brown isn’t so sure.

“Rents in the big cities already appear to be falling fast,” he wrote. “With rental yields already very low, that is a big risk to house prices.”

Rents have risen sharply in recent years, so many condo investors will still be able to pay their mortgage if they cut their asking rents, Brown wrote.

“But it is likely to be a problem for investors taking delivery of new condos this year. If rents in Toronto and Vancouver fall by 5 per cent to 10 per cent as we expect, many of these investors will face negative cashflows and may decide to sell their properties.”

This story was updated from its original version, to include Siddall’s response to criticism of the CMHC’s forecast.