CMHC's Fight With Housing Industry Over Falling Prices Just A Big Misunderstanding

The spat between Canada’s government-run mortgage insurer and the country’s residential real estate industry appears to have been a big misunderstanding over units of measurement.

Evan Siddall, president and CEO of Canada Mortgage and Housing Corp., found himself accused by some in the industry of sowing panic with an “irresponsible” forecast that predicted a much steeper price decline than others.

But if the CMHC used the same measure as other forecasts, it would be predicting a decline in line with other forecasts, Capital Economics says ― declines of between zero and 10 per cent, instead of the 9-18 per cent it offered in a report last week.

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CMHC’s forecast was for the average selling price ― a number that fluctuates much more than the house price indexes other forecasts were using as their measure.

Many experts say the house price index ― which makes an “apples-to-apples” comparison of house price change over time ― is a better measure of what is happening to the value of individual homes than the average selling price. That latter number can be impacted by a change in the mix of homes that are sold ― such as a drop-off in high end sales, which often happens in economic downturns.

“By our estimates, the CMHC’s forecasts translate into falls in the Teranet index, or like-for-like house prices, of between near-zero and 10 per cent,” Capital Economics senior Canada economist Stephen Brown wrote in a client note.

Brown noted that during the financial crisis a decade ago, the average selling price in Canada fell 18 per cent ― the same amount as the CMHC’s worst-case scenario now. But the Teranet and MLS house price indices only fell by 6 per cent and 7 per cent, respectively.

Notably, the average selling price in Canada has already fallen more than the CMHC’s best-case scenario of a 9-per-cent drop; it fell nearly 11 per cent in April alone.

“That means the average selling price in April was already lower than the CMHC’s best-case forecast for the end of this year. So, despite the negative tone of its report ... the CMHC’s best-case forecast now implies average house prices will rise (from this point),” Brown wrote.