DBRS Morningstar Releases Macroeconomic Scenarios: Canada’s Residential Mortgage Market

DBRS Morningstar released a commentary titled Macroeconomic Scenarios: Canada’s Residential Mortgage Market. In this commentary, we build on our two macroeconomic scenarios for Canada to assess how the economic outlook could impact the residential mortgage market. These scenarios are not forecasts. Rather, they serve as benchmarks for our rating analysis.

In the moderate scenario, mortgage arrears nationwide increase to approximately 65 basis points in 2020 and then gradually decline, while home prices fall by 10% cumulatively through 2022. The adverse scenario features mortgage arrears rising to 100 basis points and a 15% correction in housing prices by 2022. While the increase in mortgage arrears is more prominent in the oil-producing provinces, reflecting the more pronounced economic shock, home prices decline more sharply in those urban areas that experienced a significant run-up in prices in recent years.

The difference between the moderate and adverse scenarios largely depends on the duration of the coronavirus shock. As some provinces begin reopening this week, high-frequency consumption indicators and consumer-facing employment data could provide guidance on the pace of the recovery and the post-lockdown economic landscape.

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The commentary, Macroeconomic Scenarios: Canada’s Residential Mortgage Market, is available at www.dbrsmorningstar.com.

For more information on our sovereign ratings, visit www.dbrsmorningstar.com or contact us at [email protected].

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