Wow! – CMHC CEO Evan Siddall Points To Unsustainable Debt & Calls For 18% Drop In Housing Prices – [which of course would mean a lot more off]

According to CMHC estimates, the ratio of household debt to GDP in Canada could reach 130 per cent in the third quarter of this year, a sharp increase from around 99 per cent before the pandemic. Debt as a share of disposable income, meanwhile, could also rise precipitously to 230 per cent in the third quarter, up from 176 per cent.

Siddall said those ratios are well over a critical 80 per cent threshold, above which “the Bank for International Settlements has demonstrated that national debt intensifies the drag on GDP growth.” Such high debts risk future economic growth by “effectively converting future consumption into debt service payments,” he said, at a time when households and governments are increasingly leveraged.

Adding to real estate concerns amid COVID-19, the agency also sees housing prices plummeting in the next calendar year.

“The resulting combination of higher mortgage debt, declining housing prices and increased unemployment is cause for concern for Canada’s longer term financial stability,” Siddall said.

The CMHC sees housing prices declining between nine and 18 per cent over the next 12 months. Those estimates are loosely in line with an earlier projection by DBRS Morningstar, a credit rating agency, says which says housing prices could fall between 10 and 15 per cent by 2022.

By way of comparison, the owner of a $300,000 home at a five per cent down payment could lose around $45,000 if housing prices fell by 10 per cent, Siddall said.

He said the agency is “debating whether we should change our underwriting policies” as a result of the pandemic, potentially restricting the future lending environment as debt levels soar.

“Our support for home ownership cannot be unlimited,” he said. “It’s like blood pressure, you can have too much, [but] you need some.”

– excerpt from ‘Bloody terrifying’: COVID-19 will raise household debt levels and ‘drag on GDP growth,’ CMHC warns’, Jesse Snyder, 19 May 2020, National Post

Remarkably straight talk from the organization that has played such a large part in extending rope to participants over the last 20 years. And we’d guess that ‘18%’ is just a best guess estimate of the first step. As we’ve postulated over the years, when the bubble bursts, few are going to step in and overextend themselves to go into debt to buy assets that are falling in value yet still very overpriced by every metric. The Vancouver market has been predicated on prices that only go up, and the result has been prices that are about three times those determined by fundamental utility value. Once the drops start, we see no way of this all bottoming at 18%-off. In Vancouver, the direct and indirect economic effects of a drop of 18% in RE would alone almost definitely guarantee a larger drop.
– vreaa

15 responses to “Wow! – CMHC CEO Evan Siddall Points To Unsustainable Debt & Calls For 18% Drop In Housing Prices – [which of course would mean a lot more off]

  1. Still forecasting that 70% drop?

  2. Yes.

    30% off already, and another 40% isn’t that hard to visualize.

    Still forecasting that “A Tree CAN Grow To The Sky! ™”??

  3. This site has been prattling on about 70% since the early 2010’s so you’d have to get any appreciation since then in your calculation. Maybe all you bears will finally be right and all it took was the apocalypse!

    • Houses trading for early 2010’s prices as of early 2020. This after 3 years of continuous decline, PRE-COVID.

      Post-COVID is after the greatest systemic shock, and the greatest evaporation of global wealth, possibly seen in 100 years.

      Chinese wealth, Canadian wealth. Everyone’s wealth, gone.

      This is the black swan, the shock, the once-in-two-lifetimes correction that was the turd in the punchbowl at the real estate party.

      And here we are, in an interstitial pause caused by LEGISLATION stating that nobody has to pay their mortgage this spring or summer if they don’t want to.

      Realtors ™ are crowing about how nothing has changed as of now.

      What does everyone think happens when that pause inevitably ends, and all debts become payable as debts are?

      • Possibly greatest evaporation of wealth in last 100-years? I am going to have to respectfully disagree on that point (and early 2020 prices in the non-high end neighborhoods).
        As for what happens next…if I had any clue on that I’d end up a very wealthy man.

      • The evaporation of wealth is not really a matter of opinion. It is quantifiable and, by most measures, already surpasses any other in the past century. And it has only started! The worst is yet to come, as emergency government support is withdrawn, debts come due, and negative feedback loops kick in.

      • I think you said it just right there Ninja. And the cover photo the esteemed Ms. VREAA has submitted with today’s post adds pretty much everything else that we need to know with its troubling imagery.

        Now that it has begun, this thing could snowball into an avalanche.

        I never felt unhappier about anything in my life. And I wish this were not happening. But speaking as a market technician I am in a reasonable position to assess the coming decline. We all know how this goes anyway. It is akin to a force of physics.

        It takes a great deal of energy to push home prices as high as they have gone in Vancouver over the past 20 years. But once up there and having hit the point of reversal when buyers evaporate, the energy flips to negative and the reversal can have an almost equal amount of power to take prices right back down.

        Whether the whole decline will see a standard (and very common) 50% mean reversion in price or a more dramatic fall to a Fibonnaci like 61.8% is up for debate. But we are not likely going to walk away from the shock of this particular economic closure with a mere slap on the wrist. The odd thing about price charts (all price charts in fact) is that they are highly predictive by their nature.

        So we know we will fall. It’s just a matter of how deep it will be.

  4. @Jerkface If you’re a permabull why troll this site? Every bubble eventually pops. The human condition revolves around cycles. RE was and still is a useful way for creditors to profit and they abused our human need by undermining the system to allow us to dig our own debt graves. Now they will get the bailouts and the average buyer who could finally own a home will be left destitute unless they can hang in there for another 15-20 years until the next cycle. Given this next crisis is global no RE on Earth will be left unscathed IMO.

  5. Hi Frankly…sorry not even a regular bull.
    I do share your loathing of potential bailouts of homeowners (as with other Liberal treats) although for different reasons….It terrifies me that my kids are going to be the ones paying for this. I have no doubt that the next government or three will keep the charade going and put it all on the visa but at some point the debt is going to have to dealt with. This will impact on your “average buyer” as well.

  6. Seeking Knowledge

    “They’re whistling past the graveyard and offering no analysis. Here’s ours. You decide.” Siddall…

    I know which side I trust more.

  7. Anyone mind if i make a “kind of ” crazy comment?

    The US dollar is falling like a rock because of all the civil unrest and rioting. If it does not stop falling it will break below its bull pattern at around .94 on the DXY but then it goes into an absolute bear market at 93.65 and …..look out below.

    That would be quite an accomplishment if these rioters manage to break a pattern that has been in development for about 10 years already. But its certainly within the realm of possibility now as the Canadian dollar and Ozzi dollars fly higher. Only 3.5 cents to go (we already saw USD lose 3 cents in just two short weeks).

    My Trump might just get his wish of a weak dollar.

    • white_angelo

      fwiw, i don’t think the riots, which are all staged and planned btw, are the reason … perhaps just a minor catalyst … the usd is just a relative valuation to all other the paper currencies, mostly eu, not truly anchored to anything … it may break down in the other direction for a while but will remain the least dirty shirt … so there’s only so far that will go … to see where a paper currency could really break – a lot – try hkd or rmb

  8. I must admit, we thought the same thing (a crash would occur. Even CMHC doom and gloom scenario was so nerve racking… But low and behold, we have now record sales across Canada. In my main area home prices have skyrocketed to new highs with an average list price of $2,269,475,:

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