Canada's residential property market labouring under amplified risk

Canada's residential property market labouring under amplified risk

Canada

With the wholesale suspensions of mortgage and rent payments amid the COVID-19 outbreak, the residential real estate market has become a “riskier” choice, University of British Columbia professor Tsur Somerville argued.

“Real estate is now perceived as riskier (for banks) than it was three months ago because there’s a realization you could have people stop making mortgage payments or rent payments en masse. Normally in a downturn that evolves slowly,” Somerville told the Vancouver Sun.

This dovetailed with a recent analysis by Dominion Lending Centres chief economist Sherry Cooper, who attributed the noticeable increases in mortgage rates to said greater risk.

Somerville warned that using the last major financial downturn as a reference point might lead to mistaken predictions about where the market is headed.

“In the [2008] financial crisis there were different sorts of uncertainties around. They were economic, so you could understand a bit about what the phenomenon was. But with this it’s not the economy grinding down slowly, it’s not a financial panic, it’s not an economic shock. It’s a public health shock,” the veteran industry observer explained.

“Governments are rightly loading up on debt to get us through. But on the other side you have to pay off that debt. But what if we have a 5% to repay the debt? Well, that slows the economy. We have so much uncertainty that it’s very hard to think about where things might be once we have more certainty. How we relate to each other is going to be different.”