Reduced demand for housing and an increasing number of mortgages in arrears are two major impacts of the COVID-19 pandemic that threaten the Canadian housing market and broader economy.

Thankfully, the federal government’s stimulus measures will go a long way in helping Canadians avoid what researchers at Ryerson University’s Centre for Urban Research (CUR) call a “debt cliff.”

Diana Petramala and Hanna Chan Symth, two CUR researchers, published a weekly brief today that explores how the government programs currently in place will help reduce financial strain Canadians are experiencing through the pandemic.

The CUR brief comes on the heels of brutal Canadian economic data released Friday from the first quarter of the year that already shows what Petramala and Smyth call the “carnage” caused by the pandemic as it swept across the country. Economic activity fell 8.2 percent in the first quarter after strict lockdown and business closure measures were rolled out. The April data, which was not included in the release, is expected to be even more severe.

The researchers identify a sharp decline in housing demand spurred by income loss and economic uncertainty and the financial stress caused by job loss leading to late mortgage payments — known as mortgages in arrears — as the central threats to the housing market.

Petramala and Smyth first point to Bank of Canada commentary that says without quickly delivered government stimulus, the percentage of mortgages in arrears would have risen to 2.2 percent from the current 0.2 percent by the year’s end, the worst level on record for the country’s economy. Now with the stimulus measures in place, the number of mortgages in arrears is expected to rise only to 0.8 percent by the end of 2020.

Measures that both CUR and the Bank of Canada noted are supportive of housing market stability are the Canadian Emergency Relief Benefits (CERB), the CMHC’s mortgage purchase program and mortgage deferral programs from Canadian banks. The CMHC program is flagged as contributing to further reducing average mortgage rates on offer from lenders. The average currently sits at 2.2 percent, down 0.4 percentage points from 2019’s average, according to data from Ratehub.

The CUR researchers went on to zero in on the Ontario housing market, where mortgages in arrears sat at historically low levels in early 2020 prior to the pandemic. The number of mortgages in arrears in Toronto — at 0.1 percent as of the end of 2019 — was also much lower than the Canadian average.

As the province’s unemployment rate climbed as a result of the pandemic’s impacts, Petramala and Smyth estimated that the share of mortgages in arrears would have risen to 0.7 percent in Ontario without government intervention. This would have equated to 18,000 mortgages with the country’s six largest banks in arrears by the end of 2020, compared to only 1,800 at the beginning of the year.

With the government stimulus, the percentage of mortgages in arrears is projected to be 0.4 percent, remaining lower than the Canada-wide figure, the researchers say.

While the stimulus has helped avoid a far worse calamity thus far, the CUR team believes the housing market won’t shake off the pandemic’s effects for many months to come.

“The anticipated hit to household income from the pandemic is likely to continue to weigh on housing demand through 2020 and 2021,” Petramala and Smyth wrote.

“However, government stimulus measures will help avoid extreme financial stress in the housing market,” they added.

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