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

During a press event on March 6, Const. Alex Berube, media relations officer for the West Shore RCMP, addressed a deadly shooting that occurred in Metchosin the night before. (Devon Bidal/News Staff)
VIDEO: One man shot dead in ‘targeted incident’ on Sooke Road

Highway 14 reopens following multi-hour closure for investigation

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

A decade into the 100-year blueprint for restoring the Bowker Creek watershed, Soren Henrich, director of the Friends of Bowker Creek Society, feels positive about the future of conservation and daylighting of the creek. (Nina Grossman/News Staff)
Ten years in, Greater Victoria’s 100-year Bowker Creek blueprint gets a boost

Victoria council passes several restoration recommendations

A resurfacing of the tennis court in Metchosin is being eyed for the community. However, funding opportunities still need to be solidified for the project. (Michelle Cabana/Black Press Media)
Renewed surface eyed for Metchosin tennis court

Funding source must first be solidified in order for project to happen

The James C Richardson Pipe Band marches in a Remembrance Day parade on Nov. 11, 2019 in Chilliwack. Wednesday, March 10 is International Bagpipe Day. (Jenna Hauck/ Chilliwack Progress file)
Unofficial holidays: Here’s what people are celebrating for the week of March 7 to 13

International Bagpipe Day, Wash Your Nose Day and Kidney Day are all coming up this week

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.

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

Donald Alan Sweet was once an all star CFL kicker who played for the Montreal Alouettes and Montreal Concordes over a 13-year career. Photo courtesy of Mission RCMP.
Ex-B.C. teacher who was CFL kicker charged with assault, sexual crimes against former students

Donald Sweet taught in Mission School District for 10 years, investigators seek further witnesses

(Black Press Media files)
Medicine gardens help Victoria’s Indigenous kids in care stay culturally connected

Traditional plants brought to the homes of Indigenous kids amid the COVID-19 pandemic

Personal protective equipment is seen in the COVID-19 intensive care unit at St. Paul’s hospital in downtown Vancouver. THE CANADIAN PRESS/Jonathan Hayward
$16.9 million invested to improve worker safety, strengthen B.C.’s food supply chain

Money to be used for social distancing, personal protective equipment, cleaning, and air circulation

More than ever before, as pandemic conditions persist, the threat of data breaches and cyberattacks continues to grow, according to SFU professor Michael Parent. (Pixabay photo)
SFU expert unveils 5 ways the COVID-19 pandemic has forever changed cybersecurity

Recognizing these changes is the first in a series of steps to mitigate them once the pandemic ends, and before the next: Michael Parent

Kevin Haughton is the founder/technologist of Courtenay-based Clearflo Solutions. Scott Stanfield photo
Islander aims Clearflo clean drinking water system at Canada’s remote communities

Entrepreneur $300,000 mobile system can produce 50,000 litres of water in a day, via solar energy

Most Read