Haider-Moranis Bulletin: Raising the bar for a minimum down payment will exacerbate the fall of housing prices rather than arrest it
The drastic decline in housing sales and forecasts for falling prices over the next year may require governments to tighten credit supply to prevent borrowers from excessive debt obligations in case of job losses, while at the same time trying to stimulate the economy to sustain consumption and avoid job losses. This is easier said than done.
The risks identified in Siddall’s statement are certainly real. But what isn’t certain is how much housing prices might decline and how long the job losses will last. If they choose cheaper homes , housing sale activity will slide to lower-priced homes from higher-priced ones. This implies that average prices will further decline. In populous and growing cities, where housing affordability has been a persistent challenge, first-time homebuyers might also have to search for dwellings in the suburbs and beyond where prices are relatively lower than the urban core.
COVID-19-related job losses have occurred more frequently in economic sectors where renters dominate, so job losses among renters are likely to moderate rents. But with a freeze on evictions, vacancy rates may not change. Indeed, tighter rental housing markets could be expected if households continue to rent for more extended periods rather than moving to home ownership.
Siddall in his statement advised that 12 per cent of mortgagors have already requested deferred payments. By September, he expects mortgage arrears to affect one in five borrowers. CMHC also expects housing prices to decline by nine to 18 per cent over the next 12 months. Furthermore, Siddall highlighted the elevated debt levels in Canada, where the gross debt-to-GDP ratio is expected to hit 130 per cent by the third quarter.
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