MNI POLICY: Canada Housing Agency Flags Downside Risks

Canada's federal housing agency warned Friday that the overstretched markets seen before the pandemic may return, undercutting what has been a resilient sector aided by government relief in the early months of the pandemic.

"Economic fundamentals risk not being sufficiently strong enough to support the housing market at current levels," Canada Mortgage and Housing Corp. said in a quarterly financial report. "The expected worsening of households and businesses' financial position from the pandemic will raise housing market vulnerabilities. Therefore, housing markets face significant downside risks in the medium term."

Strong housing markets are one of Canada's biggest upside surprises this year, with prices and sales reaching records even after unemployment surged to a modern-day high this spring. CMHC and other officials warned about the rise in heavily indebted homeowners before the pandemic, and a rush on larger properties in Toronto and Vancouver has only worsened as families seek more room amid health lockdowns.

There has been no wave of delinquent loans this year, mostly because regulators allowed people to defer payments for up to six months, a program that has just started to wind down. Still, CMHC reiterated it has opened up a line for a government capital backstop of CAD10 billion if its own tasks of insuring mortgages and helping securitize mortgage bonds get into trouble.

Loan deferrals declined to 5% of of the total in September from 8% in August, and the 90-day delinquency rate was little changed at 0.34%, CMHC said. Mortgage insurance-in-force rose CAD9 billion to CAD438 billion in the third quarter from the end of last year.