CMHC Warns of Housing Market Collapse

• Author: Michael Bordonada
• Posted: 2024-03-28

Over the past few decades, no nation has grown in terms of citizenry like Canada. With their welcoming, diverse policies and strong economy, Canada has definitely grown in size since the 1990s, and their housing market has been one of the world's strongest all throughout the 2000s. Though like most nations, Canada took a big hit this year due to the Covid-19 pandemic. From February through April, their numbers really crashed and many thought that the entire nation would be dragged into a deep recession. However, May through August were very strong months for the nation's housing market. Though some experts warn that the worst is yet to come.

The Canadian Mortgage and Housing Corp (CMHC) warns that Canada may be facing their biggest housing crash in the nation's history. For some experts who deal in real estate, this is all just a bad model of what could hypothetically happen, as the last few months were some of the strongest in history for Canada. Though the CMHC is adamant that the global pandemic has yet to reveal just how bad it can be.

CMHC's reasoning all has to do with Canada's version of the shut-down, which they call the "containment process." They're urging people to stay indoors unless absolutely necessary, and some provinces are even enforcing these measures by levying fines against those who do not abide the new regulations. This has a huge ripple effect that can be felt throughout multiple industries, but none suffer as much as the housing industry.

What happens, claims the CMHC, is that people lose confidence. Fewer people are selling their homes because they're not sure if they're allowed to leave, even if they do have somewhere else to go, and far fewer people are interested in making the big move and packing their stuff up. This isn't even getting into the fact that mortgage companies aren't exactly operating like they used to. This is a high-risk time for them, seeing as more people than ever cannot pay their mortgages, so they're not exactly handing out loans to anyone who walks through the door. So while the housing market is up overall, the CMHC notices a very troubling trend of home values and home prices going up, but the number of people buying and selling homes diving in a big way. This, the CMHC claims, will even out eventually the prices and values will crash, and the rest of the market will fall with it.

However, critics of this dire prediction have pointed out that the month of July in Canada set records for how many homes were purchased. "Banks are lending," claimed an anonymous source, "and people still are purchasing homes." In a way, the crisis has really spurred the wealthy, as they have been busy buying up property. While this might not be a good thing for the haves-vs.-have-nots when the smoke clears, it's actually helping to prop the economy up right now. And during a time of global pandemic, all any nation can do is focus on the right now, and not what could possibly happen years from now.

The Fragility of the Market

The CMHC contends that, yes, the numbers are good, but they're not looking at the month-to-month data; instead, they're looking at next year, and the year after. What they see is a very troubling trend in a very unstable, fragile market. They fear that housing is being falsely inflated now, with government benefits and buying sprees that initially took place when home prices dropped. But as soon as all of that stuff dissipates, warns the CMHC, the market will have to stand on its own, and it may be too weak to do so.

Claims for benefits rose by 711% during the height of the pandemic, the CMHC points out, and this is just something that's unsustainable in Canada. In essence, millions of citizens are only able to pay their mortgages because of government's generosity. So if it is actually the federal government propping up the housing market with taxpayer dollars, what happens to that market once those dollars stop pouring in? You have people unable to pay their mortgages, and far fewer people who are going to qualify for loans to buy new properties. The accumulation of all these small factors are what the CMHC fear the most.

Only time will tell how Canada's housing market does in the long term. For right now, however, things are looking pretty solid.