Of Fitch Covid and Real Estate in Canada

Bushan Bhat
2 min readDec 12, 2020
A Picture by Ehud Neuhaus on Unsplash

“How about we all stop paying mortgages! It’s a moral hazard.”

Rick Santelli

One of the Big Three U S rating agencies Fitch Ratings Inc. has finally made some credible predictions about the real estate market in Canada in 2021.

Here are some of the findings and raison d’etre for such assessment.

Fitch forecasts that the unemployment rate in 2021 will fall to 7.8% from 9.5% in 2020. When measured against the average rate of 6.3% during the previous five years, the unemployment rate would continue to a matter of concern and would impact the housing market. The segment that has been hardest hit by the pandemic is the 15% self-employed workforce. Their misery will continue for longer than previously thought. The doles may have sustained them for some months in 2020, but that succour would no longer be available to them.

Secondly, the home prices will feel the pressure due to an unprecedented fall of almost 40% in immigration due to the pandemic- a factor that will show its impact in 2021. The rentals are already down and likely to remain low or fall. Despite the incredibly low mortgage rates at the moment, the stress test requirement for new mortgages will continue to undermine demand for housing.

The rents are down 10% to 15% in most major cities. Those who thought of paying a mortgage instead of renting will find renting an easier and more affordable option.

Fitch notes that currently more than 15% (mostly homeowners) who have borrowed and mortgaged their homes are on a payment holiday. After enjoying the holiday many will find their bank accounts still empty, and as they cannot afford to pay their mortgages, the delinquencies will rise by up to 0.5%. That again will affect the housing market adversely.

There are other factors often thought to be less significant than they truly are.

It is not only the Canadian banks that have offered mortgage holiday to their clients. Non-banking lenders often called B lenders, who are private players, also offered a helping hand to their customers who had found themselves in dire straits due to Covid-19. StatsCan, the national statistical agency, for the first-time published data about the relief the non-banking lenders have given to their customers. These firms have granted payment holidays worth $25.4 billion worth of mortgages in the second quarter, two-thirds of which are uninsured.

That sets the scenario for you.

That Fitch predicts real estate market will decline by 3% to 5% in 2021 but rebound again by 7% in 2022, seems, in the light of above facts, not only a mild and generous forecast, but a mere slap on the wrist.

Au Revoir in 2021 and whatever your plans are, I wish you well.

Bushan Bhat

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Bushan Bhat

I like to write across all genres. I believe in personal growth. Keen to Share Unique Perceptions and Tales. Also, Write on Real Estate and Finance.