The market collapse that never happened

September 15, 2020

In May 2020, Canada Mortgage and Housing Corp. (CMHC) released a doomsday-style housing forecast that envisioned a collapse of the housing market with national sales dropping up to 29 per cent, starts plunging from 50 to 70 per cent and average house prices dropping as much as 18 per cent—no real recovery until 2022.
“Canada will see a historic recession in 2020 with significant falls in indicators of the housing market,” stated the CMHC Housing Market Outlook special edition spring 2020.
Instead, housing starts and sales and prices have been on a tear—posting record sales in July and, more recently, housing starts hit their highest level in 13 years.
Canadian housing starts increased by almost 7 per cent month over month in August with the seasonally adjusted annual rate at 262,396 units—the highest level since 2007. The annual pace of urban starts had a 7.1 per cent increase in August to 248,154, CMHC reported in September.
“To say ‘this is a solid level of building activity considering the pandemic,’ and all that, would be a massive understatement,” said Robert Kavcic, senior economist at BMO Capital Markets Economic Research. “Another very strong showing in August suggests that builders have fully made up any lost time during the spring.”
B.C. and Alberta would be especially hard hit, CMHC had forecast back in May, because of a reliance on the tourism and travel industry and resource prices.
Yet, as of July, Canadian home sales posted the highest level of any month in history after transactions soared 26 per cent from a month earlier, according to the Canadian Real Estate Association.
Average resale home prices in Canada were up 14 per cent in July from July 2019 .
Home sales in Calgary were 14 per cent higher and they rose 10 per cent in Edmonton from a year before.
B.C. has become a stellar performer. By August, Metro Vancouver housing sales were up 36 per cent from August of 2019 and nearly 20 per cent higher than the 10-year average for the month. Detached house prices, already the highest in Canada, increased a further 6.6 per cent to nearly $1.5 million.
Remarkably, the Canada-wide sale and price surges occurred not only during a recession but as CMHC tried to curb the market.
On July 1, the federal housing agency established a minimum credit score of 680 for buyers—up from 600. They also limited gross and total debt servicing ratios and outlawed borrowing funds (such as with an unsecured line of credit) for a down payment.
Bob Dugan, chief economist at CMHC, remains bearish, saying that the federal housing agency is projecting a slower housing starts trend by the end of 2020.