A real estate sold sign hangs in front of a Canadian property Friday, Nov. 4, 2016. THE CANADIAN PRESS/Graeme Roy

A real estate sold sign hangs in front of a Canadian property Friday, Nov. 4, 2016. THE CANADIAN PRESS/Graeme Roy

W-shaped recovery would be ‘very severe’ without government assistance: CMHC

The corporation says the COVID-19 pandemic could trigger nearly 50 per cent drop in housing prices

A W-shaped recovery from the COVID-19 pandemic could trigger a nearly 50 per cent drop in housing prices and a peak unemployment rate of 25 per cent, if the government doesn’t offer relief, says the Canadian Mortgage and Housing Corporation.

A W-shaped recovery is when an economy begins to rebound from a recession quickly but then rapidly falls into another period of downturn before recovering again.

“That scenario is very severe and implausible in nature, but it’s very important to understand,” said CMHC’s chief risk officer Nadine LeBlanc in a Thursday media briefing.

The scenarios LeBlanc discussed are not meant to be predictions or forecasts tied to what CMHC sees headed for the country as it continues to grapple with COVID-19, but the agency runs the tests anyway to help with risk mitigation and offer transparency for Canadians.

It began the tests at the onset of the pandemic, giving them a more realistic feel, but in past years has studied its ability to cope with sustained low oil prices, a global trade war, earthquakes, major volcanic eruptions and cyberattacks on financial institutions.

Of all the scenarios CMHC looked at this year, the W-shaped recovery without government support is the most implausible, but likely to cause the severest impacts, LeBlanc said.

She predicted CMHC’s solvency and capitalization would likely be challenged in a W-shaped recovery where the government doesn’t step in to offer relief.

READ MORE: Annual pace of housing starts down in December: Canada Mortgage and Housing Corp

CMHC found that a W-shaped recovery with government support would curtail the severity, be more manageable and only cause a roughly 32 per cent drop in home prices and a 24 per cent unemployment rate.

If the W-shaped recovery with government support was coupled with a severe cyberattack targeting the country’s whole financial industry, CMHC stress test results show a 37 per cent decrease in home prices and a 24 per cent unemployment rate would be likely.

In that scenario, cumulative insurance claim losses would reach $8.4 billion — roughly half the amount CMHC said the country would see in a W-shaped recovery with no government assistance.

CMHC also looked at a U-shaped recovery, where a recession gradually improves.

In that scenario, they found house prices would fall by almost 34 per cent, the peak unemployment rate would be nearly 15 per cent and cumulative insurance claim losses would reach $9.6 billion.

That scenario was the most plausible and would likely generate the most moderate impacts, LeBlanc said.

Many economists have been predicting Canada will see a K-shaped recovery from the COVID-19 pandemic, where the rich get richer and the poor get poorer.

It wasn’t on CMHC’s radar when it started looking at stress testing last March, but there is some interest in it, LeBlanc hinted.

“We’re obviously not out of this crisis and so CMHC continues right now running stress testing and one that’s looking very interesting to us is the K-shaped scenario.”

The Canadan Press

Like us on Facebook and follow us on Twitter.

Want to support local journalism? Make a donation here.

Mortgage BrokersProperty taxesReal estate

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

From right: Brad Cameron, BCEHS superintendent of patient care delivery for Greater Victoria, with primary care paramedics Em Funk, Tyrone Trotter, Fiona Galvin and Peter Hill at the Leigh Road station. (Black Press Media file photo)
West Shore paramedics didn’t waver when faced with COVID-19 pandemic

B.C. Emergency Health Services personnel are this year’s Courage and Bravery Award recipients

February is Black History Month. (Photo: Government of Canada)
Camosun College highlighting Black content with research guide during Black History Month

The collection includes a range of works by Black authors and creators

Ownership of SISȻENEM — also known as Halibut Island located east off Sidney Island — has transferred to W̱SÁNEĆ Leadership Council after The Land Conservancy of British Columbia (TLC) had purchased the island for $1.55 million. (The Land Conservancy/Submitted)
SISȻENEM (Halibut Island) transfers to W̱SÁNEĆ Leadership Council under historic agreement

The Land Conservancy purchased the 9.67-acre island for $1.55 million with help from unnamed donor

Several BC Ferries sailings are cancelled Friday due to adverse weather. (Black Press Media File)
UPDATED: All B.C. Ferries sailings cancelled due to wind, weather

Adverse weather causes cancellations across several BC Ferries routes

Amy Morrison was surprised to find a note on her windshield for parking on a public street with no restrictions in south Oak Bay where she works. (Amy Morrison Photo)
Oak Bay resident uses notes to claim street parking

‘You must have noticed, we park in front of OUR HOUSE,’ note writer says

Dr. Bonnie Henry leaves the podium after talking about the next steps in B.C.’s COVID-19 Immunization Plan during a press conference at Legislature in Victoria, B.C., on Friday, January 22, 2021. THE CANADIAN PRESS/Chad Hipolito
COVID: 589 new cases in B.C., and 7 new deaths

No new outbreaks being reported Feb. 26

Staff from the Marine Mammal Rescue Centre, passersby, RCMP and Nanaimo Fire Rescue carried a sick 300-kilogram steller sea lion up the steep bluff at Invermere Beach in north Nanaimo in an attempt to save the animal’s life Thursday. (Photo courtesy Marine Mammal Rescue Centre)
300-kilogram sea lion muscled up from B.C. beach in rescue attempt

Animal dies despite efforts of Nanaimo marine mammal rescue team, emergency personnel and bystanders

Gina Adams as she works on her latest piece titled ‘Undying Love’. (Submitted photo)
‘Toothless’ the kitty inspires B.C. wood carver to break out the chainsaw

Inspired by plight of a toothless cat, Gina Adams offers proceeds from her artwork to help animals

B.C. Finance Minister Selina Robinson presents bill to delay B.C.’s budget as late as April 30, and allow further spending before that, B.C. legislature, Dec. 8, 2020. (Hansard TV)
How big is B.C.’s COVID-19 deficit? We’ll find out April 20

More borrowing expected as pandemic enters second year

The first of 11 Dash 8 Q400 aircraft's have arrived in Abbotsford. Conair Group Inc. will soon transform them into firefighting airtankers. (Submitted)
Abbotsford’s Conair begins airtanker transformation

Aerial firefighting company creating Q400AT airtanker in advance of local forest fire season

The Canada Revenue Agency says there were 32 tax fraud convictions across the country between April 2019 and March 2020. (Pixabay)
Vancouver man sentenced to 29 months, fined $645K for tax evasion, forgery

Michael Sholz reportedly forged documents to support ineligible tax credits linked to homeownership

Then-Liberal leader Andrew Wilkinson looks on as MLA Shirley Bond answers questions during a press conference at Legislature in Victoria. (Chad Hipolito / THE CANADIAN PRESS)
B.C. Liberal party to choose next leader in February 2022

Candidates have until Nov. 30 to declare whether they are running

After nearly 10 months of investigations, Mounties have made an arrest in the tripping of an elderly woman in Burnaby this past April. (RCMP handout)
VIDEO: Mounties charge suspect for tripping elderly woman near Metrotown in April

32-year-old Hayun Song is accused of causing bodily harm to an 84-year-old using her walker

Anyone with information on any of these individuals is asked to call 1-800-222-TIPS (8477) or visit the website victoriacrimestoppers.ca for more information.
Greater Victoria Crime Stoppers wanted list for the week of Feb. 23

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

Most Read