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Home prices to fall as much as 15%: CMHC forecast


The Canada Mortgage and Housing Corp. will soon release revised expectations for home price declines, which will be greater than the housing authority expected last summer, chief executive Romy Bowers said at a conference Thursday.

In July, a CMHC report said a surge in interest rates could drag national home values down by five per cent by the middle of 2023. While a formal revision won’t be released until October, Bowers said it is expected to be in the range of 10 to 15 per cent.

She said falling housing prices should make homes — which rose at unsustainable levels in the first year or so of the COVID-19 pandemic — more affordable. However, higher interest rates will offset the renewed affordability, she added during a discussion Thursday afternoon at the Bloomberg Canadian Finance Conference.

Bowers said “correcting the supply-demand imbalance” by building more homes including rental properties at all price points is the best way to remedy Canada housing affordability issues.

In May, CMHC released a comprehensive report that showed new housing starts have struggled to keep up with population growth in some of Canada’s large cities, especially Toronto, making affordability a “significant” challenge.

The following month, the housing authority said projected construction of new homes by 2030 would not be enough to solve Canada’s supply and affordability issues, concluding that an additional 3.5 million units would be required on top of those already in the works.

The CMHC report in June projected that housing stock would increase by 2.3 million units by 2030, reaching close to 19 million housing units, based on rates of new construction at the time. However, that “would need to climb to over 22 million… to achieve affordability for everyone living in Canada,” the report said.

“The number is huge,” Bowers said Thursday, adding that the size and complexity of the affordability issue should not be an impediment to addressing it.

“There’s no doubt that doubling our housing starts is very difficult, but that doesn’t make it any less desirable.” 

She said CMHC is working to offset pullbacks in the development and construction pipeline resulting from economic factors such as rising interest rates and inflation, noting that some of the projects the housing authority was supporting “are no longer viable.”

But Bowers said she is not concerned that fast-rising interest rates and falling home prices will cause distress in the housing market, despite the pain to homeowners’ pocketbooks, because employment levels are not showing signs of strain.

“What causes losses for mortgage lenders is increases in unemployment,” she said. “To date, the employment picture in Canada has been very strong, so despite the interest rate increases we don’t see signs of  distress in our mortgage book.”

She acknowledged that high household debt is “a vulnerability” in Canada’s housing market, one that would be aggravated by interest rate increases, but she said a mortgage stress test that requires home buyers and those renewing a mortgage to have the financial means to handle increased monthly costs  “a very good policy tool in providing providing resiliency to the system.”

The Toronto Regional Real Estate Board is among those who have called for more flexibility in the stress test, particularly for those trying to renew a mortgage who must re-qualify at the current rate plus two percentage points.

“I think changes to the stress test have to be considered in light of the fragility of the system and ensuring that the actions that have been take to strengthen it remain in place,” Bowers said, adding that the mortgage qualification test was among safeguards put in place following the 2008 financial crisis, including additional capital requirements for lenders and beefed up underwriting standards. 

She noted that what happens to the stress test is not up to CHMC, however, because such decisions are made by the Office of the Superintendent of Financial Institutions, which has so far rejected the calls for more flexibility, and the Department of Finance. 

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