CMHC: Canadians’ High Net Worth “Vulnerable to External Economic Risks”

Tuesday, November 4th, 2014

General shortage of liquid assets means any future recession or wave of job losses could result in flood of homes on the market and drive down prices, CMHC chief economist warns Housing Outlook Conference

Joannah Connolly

Canadians need not fear the currently high debt-to-income ratios as their average net worth is also high – but the fact that most people’s assets are tied up in real estate creates a “vulnerability” to external and global economic forces, the CMHC’s chief economist warned November 4.

Speaking to a packed audience at the CMHC’s fall Housing Outlook Conference in Vancouver, Bob Dugan said that, in the event of a future recession and wave of job losses, Canadians lacking liquid assets such as cash and stocks to draw on would be likely to be forced to sell their homes, resulting in a flood of homes on the market that could cause a price crash.

Such a crash would damage the total net worth of even those Canadians who did not need to sell their homes in a recession, he added.

Global economic risks he identified were:

  • a possible slowdown in the Chinese market;
  • the potential for monetary deflation in the Eurozone;
  • renewed geopolitical tension in the Middle East;
  • weaker-than-forecast economic growth in the US; and
  • rising interest and mortgage rates in Canada.

Dugan said he believed that the impact of such events in Canada could be “amplified” because of the vulnerability of Canadian household wealth.

However, his forecast for the Canadian housing market was largely positive, as he predicted interest rates to remain level until late 2015, average incomes to rise modestly and net migration to remain strong.

Dugan added that although the debt-to-income ratio is growing in Canada, the rate of growth is slowing in all areas other than personal loans, which only accounts for a small proportion of household debt.

© 2014 Real Estate Weekly

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