Will we see a housing market crash in 2020 and beyond? The Canadian Mortgage and Housing Corporation (CMHC) published its housing market outlook this week and, well, their forecast for home sales and prices look pretty bleak.
Housing starts are expected to see a decline of between 51% to 75%, and not begin to recover until the second half of 2021. Existing home sales are likely to decline somewhere in the range of between 19% to 29% before a recovery in late 2020. And, finally, the forecast for existing home prices is a decline of between 9% and 18% before a recovery in the first half of 2021.
As real estate tends to be regional / local, the greatest expected decline will be felt in Alberta and Saskatchewan thanks to the negative impact of low oil prices. Ontario is expected to see larger declines in sales and prices this year than in BC and Quebec. The Atlantic provinces will see a more modest correction.
The average price for a home in Canada was $488,203 in April 2020 – down about 1.3% from a year ago. But national home sales fell by 56.8% from March to April this year, and the number of newly listed properties decreased by 55.7%.
The bottom line, according to the CMHC housing market outlook, is that the real estate market will feel the effect of COVID-19 until at least 2022.
You can download the CMHC housing market outlook report here.
Since the report’s release, CMHC’s president and CEO Evan Siddall has faced severe backlash from, you guessed it, real estate agents who claim the outlook was “panic-inducing and irresponsible.”
RE/MAX believes real estate prices across Canada will remain stable or experience a modest decline. In other news, your barber thinks you need a haircut, your investment advisor thinks you need to save more, and your insurance broker thinks you’re under-insured.
Evan Siddall defended CMHC’s position in a Tweet.
“They’re whistling past the graveyard and offering no analysis. Here’s ours. You decide.”
We looked at the recent financial & economic developments in Canada, including the impacts of the #COVID19 pandemic. Check out the national highlights on the #housing market ⬇️ & learn more in the full report: https://t.co/AD4OLbe9YI pic.twitter.com/b8oeJoDG85
— CMHC (@CMHC_ca) May 27, 2020
Siddall also encouraged readers to question the motives of anyone suggesting that house prices “always go up.”
Obviously forecasts are just that, a best guess as to what may happen in the future. Real estate advocates argue that even though housing starts and sales have plummeted, many sellers will simply wait out the pandemic until the housing market picks up again. They won’t accept an 18% decline in their asking price.
But housing prices have declined by as much (and more) before COVID-19, and this time some homeowners may not have the luxury of waiting.
More than one million homeowners applied to defer their mortgage payments. Eight million Canadians have applied for the Canada Emergency Response Benefit (CERB). Airbnb asked the federal government to bail out its hosts in Canada, a request that was dismissed with a one word response: “No.”
Something has to give, and many of these homeowners will be forced to accept whatever offers come their way.
This Week’s Recap:
No new posts from me this week, but I’m working on another retirement income case study that I hope you’ll enjoy.
Over on Young & Thrifty I wrote about the difference between Canadian and U.S. listed ETFs.
Mutual funds with deferred sales charges (DSC) are being gradually phased out but many investors are still locked in to this insidious fee schedule. In this post from the archives, I argue that it’s probably best to rip off the band-aid and get rid of your DSC mutual funds.
What I’m Listening To, Reading, and Watching:
I won’t lie, I’ve watched a lot of television since the pandemic hit. We have a treadmill in our basement and when the weather is bad I watch TV while I run. I’m so glad we have Netflix and Crave to pass the time.
I’m catching up on some shows that I never got around to watching while they aired. I’m near the end of season three of The Wire, which has been excellent. My wife and I started also watching Westworld and finished season two. It’s a bit of a mind bender.
For podcasts, I’m thankful that my usual lineup of Animal Spirits, Rational Reminder, and Freakonomics have continued to put out new episodes weekly. Episode 100 of the Rational Reminder featured professor Ken French and is a must listen for investors.
The new season of Against The Rules with Michael Lewis is out. While the first season was about referees and fairness, this season is all about the rise of coaching. It’s probably my favourite podcast at the moment. You should check it out.
My book reading has been in a decline lately. I guess I’m secretly hoping that George R.R. Martin will finally finish Winds of Winter (wishful thinking, I know). If you have a good book recommendation please leave a comment.
Credit Card Genius looks at travel rewards and expiration dates – how to avoid losing your points.
Are you booking or changing a flight? Erica Alini explains all the rules for major Canadian airlines.
Budget travel expert Barry Choi explains why credit card travel insurance may be overrated:
“I personally never rely on my credit card travel insurance for anything travel medical related.”
The Globe and Mail’s Rob Carrick finishes off an excellent series called Pandemic Personal Finance with a 10-point checklist of things you should have done by now to protect or improve your money situation.
One thing every investor should have is an investment policy statement to keep your portfolio in check in good times and bad. Maria at Handful of Thoughts shares her personal investment policy statement and what you need to know about creating your own.
Similarly, Gen Y Money shares how she’s investing during a pandemic.
Million Dollar Journey offers a guide to Canadian investing taxes: dividends, interest and capital gains.
Finally, here’s Squawkfox Kerry Taylor with a sobering take on masks, money, and how COVID-19 is changing social norms.
Have a great weekend, everyone!