Oil at $35 would trigger 26% Canada home price drop, CMHC says

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(Bloomberg) -- Oil at $35 a barrel for a period of five years would trigger a 26 percent 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 percent. Spokesman Charles Sauriol said later in an e-mail the scenario assumes oil at $35 a barrel over five years. The “Base Case” scenario calls for housing prices to climb 9.1 percent and joblessness to peak at 6.6 percent.

Crude oil traded at $41.60 a barrel at 3:21 p.m. in New York, and is set to average below$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.

Global Deflation

CMHC’s “US-style Housing Correction” scenario produced a 30 percent fall in home prices and 12 percent peak unemployment. The biggest hit to housing occurred under the “Global Deflation” scenario, where prices plunged 44 percent. 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 percent to C$452,552 ($339,000) in October from a year earlier, according to the Canadian Real Estate Association. In Vancouver, prices jumped 16 percent and in Toronto, the country’s largest city, they increased 7.4 percent.

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.
  • Mortgage Guy Geoff on 2015-11-30 5:43:39 PM

    There's so much that could be said here, but I'm only going to go with a question: if it is so risky to have a high concentration of net worth in real estate, where then should we redistribute portions of our net worth to? Last time I checked, my mutual funds don't perform nearly as well as my rental properties. Maybe they mean we should buy some stocks. After all, maybe my Nortel will come back one day.

  • Scare tactics much? on 2015-11-30 7:20:38 PM

    So it only came out after the presentation that this hypothetical scenario was after a 5 year period of oil at $35...? Methinks that within half a decade of being hitched to a weakening industry, we would make some effort to diversify. Oh, wait... we already are?! Well gee whiz...

    Are we Canadians honestly being taxed to pay for this sort of garbage presentation on our economy to a "private audience in NY"? This sounds like a massive exercise in vanity.

  • Derek Austin on 2015-11-30 10:07:34 PM

    If oil stays for 5 yrs at $35 dollars then it will be time for Alberta to separate from Canada as that will mean the the East is still buying Oil from other countries that do not support the Our Nation, I hope sooner than later the East realizes that they need to start buying oil from Western Canada .Millions of dollars are made by people from the East working in the patch but still living in the East. The whole country suffers except for Toronto and Vancouver ad they have foreign money to live off of

  • Jerry Quigley on 2015-12-01 8:02:31 AM

    Wow, many of these numbers/scenarios seem far fetched. Wonder why a crown corporation is doing slide presentations on them?
    Surely the presentation included an expected scenario.

  • John on 2015-12-01 10:44:22 AM


  • Carsten on 2015-12-01 4:54:53 PM

    Reading this is a waste of everybody's time.

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