Valuation Trouble

Daily Mortgage Report – May 5

• Trap Door for GTA Home Values: The average home price in the Greater Toronto Area fell a startling 11.8% versus March (those details). And Toronto’s drop wasn’t alone. Among the larger cities reporting April prices, Ottawa fell 6.8%, Calgary was down 5.3% and London dropped 5.4%. Vancouver is holding up for now, at basically flat month-over month. “…For Canada…I think, the best case we’re looking at [is]…house prices getting back to their pre-recession levels, at the earliest, by the end of 2022,” said CMHC economist Bob Dugan. So, what happens if people stop believing in pent-up housing demand? When market psychology sours, more buyers step aside until the coast is clear. And the coast isn’t clear if people fear an avalanche of supply (property listings) post-lock-down. “Demand will be reduced by a weak labour market and weaker investment activity,” writes CIBC. “Forced sales will add to supply, and probably outweigh the offsetting impact of reduced supply of new units.”
• Oil Surges: A sizable minority of Canada’s economy desperately needs rising oil prices, and that’s what they got today. Alberta oil (WCS) hit $19+ a barrel for the first time in seven weeks. It was 13 cents a barrel 14 days ago (solid 14,500% return). Meanwhile, the 5-year bond yield—an economic indicator of sorts—is down in that same timeframe. Some view that as a hint that oil’s rebound isn’t as positive as hoped.
• Deferral Tally: 10% of CMHC-insured mortgages have payments in deferral, the housing agency said Tuesday. At Genworth, the biggest private default insurer, the number is 13%. CMHC assured that it is well-capitalized and that the government stands behind it as a guarantor of its obligations. In the days ahead, CMHC will announce the results of its new pandemic stress test—where we’ll learn whether CMHC can ride out this crisis.
• No Cash to Spend: Few are betting on an inflation revival and a big sustained bounce in mortgage rates, especially when 1 in 3 Canadians fear a permanent drop in discretionary spending.