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Toronto Real Estate Market

Why didn’t the mortgage deferrals crash the housing market?

Back in the early days of Covid, almost 800,000 Canadians applied for mortgage deferrals.

So the Canadian Mortgage and Housing Corporation warned us that many people might be unable to pay back their mortgages upon deferral expiry.

As a result, we may see streets filled with foreclosure signs and CMHC forecasted a huge housing price drop possibly up to 18% over a 12 month period.

Now that we’re in 2021, over 93% of the mortgage deferrals have expired.  

Opposite to the forecast, the housing market across Canadian cities has been booming.

Especially so in Toronto, with sales activity up 64.5% and average price up 11.2% in December 2020 compared to a year ago.

It’s pretty obvious that we won’t be falling off that mortgage deferral cliff, so why didn’t it happen?   

Why was the forecast way off?

The Chief Economist at the CMHC explained the situation with two key reasons earlier this week.

Before I go into his first reason, let me share something with you.

Back in April last year, I had a video that got the most dislikes ever.

It was a video digging deep into the job loss report.

Back then, many people disliked what I said and left negative comments.

Some said it was a bias analysis because I’m a real estate broker…

Some said it was simply laughable because it’s so obvious that the market was going to crash…

Maybe they really wished the market to crash…

Anyway, so why hasn’t the mortgage deferral crash the market?

Let’s hear Reason #1 from the CMHC Chief Economist: The Job Loss Demographic.

When we looked at COVID-related job losses, it became evident that they were focused in lower paying jobs in things like accommodation and the food service industries.  These were significantly more affected than the higher paying professional jobs that were more adaptable to remote working.  So, a lot of these job losses were predominantly at income levels that didn’t impact homeowners.

That’s what he said just a few days ago.

The reality is that the pandemic hasn’t financially impacted all Canadians equally.

Now let’s get to Reason #2: Significant Increase in Savings.

The household saving rate – the amount that’s left over after all expenses was 2% or lower in Canada before the downturn.  It shot up to 27.5% in the second quarter.  So, you have this pandemic going on with massive job losses, but (disposable) incomes actually shot up and people saved a lot of that income; there was nowhere to spend that money due to lockdowns.  At the end of the day, households built up a significant amount of savings.

Disposable income did come down a little bit in the third quarter, but it was decreasing from historically high levels.  And the savings rate was still 14.6% in this time period.

This was exactly what I talked about in the Cash is King episode back in October.

I just want to reiterate the same message to you again because it’s becoming clear that the effect of money printing is going to kick in.

If you don’t take action now and put your money into assets, it’s going to depreciate.

So make sure you spend time to plan out your investments in 2021, if you need help, you can schedule a call with me at the link below.

Schedule a Call with Dan

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