Oil at US$35 would send Canadian home prices tumbling 26%, CMHC says
Oil at US$35 a barrel for a period of five years would trigger a 26 per cent collapse in Canadian home prices, according to stress tests run by Canada’s housing agency. The results were part of a slide presentation Evan Siddall, chief executive officer at Canada Mortgage & Housing Corp., gave Monday to a private audience in New York. The “Stress tests – Financial impacts” slide included five scenarios, one of which was called “Oil Price Shock,” which also predicts the unemployment rate would peak at 12.5 per cent. Spokesman Charles Sauriol said later in an e-mail the scenario assumes oil at US$35 a barrel over five years. The “Base Case” scenario calls for housing prices to climb 9.1 per cent and joblessness to peak at 6.6 per cent. Crude oil traded at US$41.60 a barrel at 3:21 p.m. in New York, and is set to average below US$50 for a fourth month, amid record supplies. Siddall wasn’t available for comment after his presentation. He’s due to speak Thursday in Montreal. Related Ottawa told plan to shift more mortgage risk to banks threatens nation’s financial stability
Global Deflation CMHC’s “US-style Housing Correction” scenario produced a 30 percent fall in home prices and 12 per cent peak unemployment. The biggest hit to housing occurred under the “Global Deflation” scenario, where prices plunged 44 per cent. That would also be the worst case for the labor market, pushing unemployment up to 16 percent. The price of an average home in the country rose 8.3 per cent to $452,552 in October from a year earlier, according to the Canadian Real Estate Association. In Vancouver, prices jumped 16 per cent and in Toronto, the country’s largest city, they increased 7.4 per cent. Other slides showed Canada’s home price growth since the 2008 recession has outpaced that of the U.S., Australia, and the U.K. It also reiterated risks to housing include high debt-to- income and concentration of net worth in housing. –With assistance from Greg Quinn. Bloomberg.com
