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

Const. Allan Young. Photo: Abbotsford Police Department
Manslaughter charge laid in Nelson death of Abbotsford police officer

Allan Young died after an incident in downtown Nelson last summer

Sarah De Klein and her family have created a team – one of many – for the Move4Communitas fitness challenge and fundraiser. (Submitted photo)
Communitas in Abbotsford holds virtual fitness challenge

Move4Communitas started March 1 and runs for 8 weeks

The Kimber family of Boston Bar lost their home in a fire. Blaine Kimber’s daughter created a fundraiser to help rebuild the home with the goal of $100,000. (Screenshot/GoFundMe)
Fundraiser created for Boston Bar family that lost everything in weekend fire

Witnesses say the Kimber family escaped the fire without injury, but their home is a total loss

Police tape is shown in Toronto Tuesday, May 2, 2017. Statistics Canada says the country's crime rate ticked up again in 2018, for a fourth year in a row, though it was still lower than it was a decade ago. THE CANADIAN PRESS/Graeme Roy
CRIME STOPPERS: ‘Most wanted’ for the week of March 7

Crime Stoppers’ weekly list based on information provided by police investigators

Elvira D’Angelo, 92, waits to receive her COVID-19 vaccination shot at a clinic in Montreal, Sunday, March 7, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
‘It’s been a good week’: Tam hopeful on vaccines as pandemic anniversary nears

Tam says the addition of two new vaccines will help Canadians get immunized faster

(The Canadian Press)
‘Worse than Sept. 11, SARS and financial crisis combined’: Tourism industry in crisis

Travel services saw the biggest drop in active businesses with 31 per cent fewer firms operating

Pictures and notes in from friends and classmates make up a memorial in support and memory of Aubrey Berry, 4, and her sister Chloe, 6, during a vigil held at Willows Beach in Oak Bay, B.C., on December 30, 2017. THE CANADIAN PRESS/Chad Hipolito
Mother of slain daughters supports recent changes to Canada’s Divorce Act

Sarah Cotton-Elliott said she believed her children took a back seat to arranging equal parenting

Victoria man Brett Andersen is asking for people’s help to secure him one of eight free tickets to the moon. (Screenshot/@brettandersen Instagram)
Victoria man wants your help securing a free ticket to the moon

Japanese billionaire offering eight people a trip to the moon

The Conservation Officers Service is warning aquarium users after invasive and potentially destructive mussels were found in moss balls from a pet store. (BC Conservation Officers Service/Facebook)
Aquarium users in B.C. warned after invasive mussels found at pet store

Conservation officers were told the mussels were found in a moss ball from a Terrace pet store.

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Hockey hall-of-fame legend Wayne Gretzky, right, watches the casket of his father, Walter Gretzky, as it is carried from the church during a funeral service in Brantford, Ont., Saturday, March 6, 2021. HE CANADIAN PRESS/Nathan Denette
Walter Gretzky remembered as a man with a ‘heart of gold’ at funeral

The famous hockey father died Thursday at age 82 after battling Parkinson’s disease

The family of injured Willoughby resident Ronald Gerald Jesso is hoping someone saw something that will help solve the mystery of how he came to be so badly hurt on the morning of Feb. 22. Jesso is still in hospital. (Jesso family/Special to Langley Advance Times)
An appeal to help solve the mystery of an injured Langley man

Family of Ronald Gerald Jesso asks witnesses to come forward

Most Read