Meanwhile, federal government acts to shore up lenders' finances
With Canadian investors already reeling from the fall in the value of equities and plunging oil prices, the housing market is set to create further pain.
The latest RBC Monthly Housing Market Update makes for gloomy reading with senior economist Robert Hogue writing that the “light was on” in the housing market in February but that it is “about to be turned off.”
Hogue says that fears of the spread of COVID-19 and social distancing are set to decimate house viewings and buyers are likely to take a wait-and-see approach.
He notes that some potential homebuyers would have been hoping that they could cash-in some investments to fund their down payment, but asset values are likely to have stymied that strategy.
And while mortgage rates are low, especially following recent interest rate cuts and the potential for more, consumer confidence is likely to outrank the benefit that this may have otherwise provided.
Hogue’s outlook is that home sales will plunge in the coming weeks before a rebound at some (undeterminable) point.
But he expects home values nationally to be resilient with tight supply in many markets providing a cushion against correction.
For Toronto, Vancouver, Ottawa, and Montreal, recent price escalations are predicted to cool but there could be tougher conditions for the Prairies where market conditions are softer and the oil price fall will be a further blow.
Government announces mortgage-buying program
The federal government has announced a revised Insured Mortgage Purchase Program (IMPP) which will see up to $50 billion of insured mortgage pools purchased through the Canada Mortgage and Housing Corporation (CMHC).
It means that banks and mortgage lenders will have stable funding to continue to lend to consumers and businesses.
The government highlights that this does not pose additional risk to taxpayers as the insured mortgages being purchased are already backed by the government.
Earlier this week, OSFI announced a reduction in the stability buffer that Canada’s largest banks are required to maintain; and the government put a freeze on the planned changes to the mortgage stress test.
We’re taking measures to help the #cdnecon during #covid19. Through an Insured Mortgage Purchase Program, the #GoC will buy up to $50B of insured mortgage pools to help lenders. Details: https://t.co/JQVF3UCQ9b pic.twitter.com/50TQMGDzrG
— CMHC (@CMHC_ca) March 16, 2020
