CMHC Could Survive Crises: Stress Tests

The Canada Mortgage and Housing Corporation has worked out the numbers on the assumption that the Canadian economy could get rocked by any number of different calamities and come to the same conclusion: the corporation itself would be all right.

CMHC, which holds the vast majority of Canadian mortgages on its books via underwritten insurance policies, made the assertion following release of its latest stress test. It's has been running such a test every year since 2015, when the country's top bank regulator asked it to start testing whether its business could withstand even the most extreme scenarios.

This year, the agency decided to test how it would do under four extreme scenarios over the next five years:

A rise in anti-globalization sentiment leading to tariffs and trade barriers.

A major earthquake in Canada.

A steep decline in the price of oil.

A housing market correction similar to the one in the U.S. in 2007.

In each case, the CMHC found its finances would be able to withstand the damage.

In all scenarios, the CMHC would emerge with an operating capital ratio well above its own target of 165%.

Among the most damaging scenarios would be a rise in anti-globalization sentiment, something the housing agency reckons would lead to an as much as 31% decline in house prices, and cause the jobless rate to more than double, to above 15%.

The earthquake test, meanwhile, determined that a major tremor could take a huge toll on people and property, but very little on other parts of the broader economy. House prices would decline by about 0.2%, and the jobless rate would tick higher to 8.2%. CMHC's profits would remain at a healthy $6.5 billion.