Mortgage arrears triggered by COVID-19 could increase to nearly twice the levels seen during the tail-end of the 2008-09 recession, the Bank of Canada said in the 2020 edition of its “Financial System Review.”
In its analysis of the probable outcomes of the pandemic, the BoC said that if mobility restrictions and other outbreak containment measures extend past June, Q2 national economic activity might weaken by as much as 30% compared to January levels.
“Structural damage to the economy would lead to a slower recovery, and GDP would still be well short of its original trendline, even after two years,” the BoC said.
While payment deferrals would moderate the decline, “the scenario’s peak arrears rate of around 0.8% comes in the second half of 2021, when payment deferrals have expired but not all households have had their incomes fully recover,” the BoC said. “This peak is close to double the peak arrears rate in 2009.”
Steadily depleting purchasing power might inflict further economic damage on top of the pandemic’s impact, according to proptech Wowa Leads. For instance, a 35% drop in home sales might lead to a 0.6% loss in Canadian GDP by 2021.
“New safety protocols, high unemployment rates, and further waves of COVID-19 could prevent Canadian residential real estate from fully recovering by 2022, despite mortgage deferral initiatives by the CMHC and measures by the Bank of Canada,” Wowa Leads said. “Real estate professionals will need to adapt to the crisis by using new technologies to move their services online.”