The economic fallout caused by the coronavirus pandemic has halted major industries across the board and left Canada's real estate market at a near standstill.

That much is fact.

What this means for the future of real estate and real estate prices is still up in the air. But in the lead up to the outbreak, the housing market was definitely "heating up," with resale activity and home prices increasing at the start of the year. As lockdown measures unfolded though, the housing market lost momentum. In March alone, home sales fell 14% month-over-month, while over three million Canadians either lost their jobs or worked fewer hours.

Regardless of the various income support programs from the federal government and mortgage deferral options from the banks, the rise in unemployment could lead to the inevitably of more households falling behind and potentially defaulting on mortgage payments, which could in turn lead to home prices falling in the coming years, according to a new report from credit ratings agency DBRS Morningstar.

READ: CIBC Forecasting Canadian Home Prices to Drop 5-10% Relative to 2019 Levels

While the extent of the damage to the housing and residential mortgage markets remain unclear, DBRS Morningstar has offered two possible post-pandemic scenarios.

“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,” said DBRS Morningstar.

“The adverse scenario features mortgage arrears rising to 100 basis points and a 15% correction in housing prices by 2022.”

Homeowners in oil-producing provinces where mortgage arrears are more prominent are expected to struggle the most, "reflecting the more pronounced economic shock." However, home prices are also expected to decline more sharply in urban areas that experienced a significant run-up in prices in recent years, including Toronto, where home prices are expected to fall 14% in the moderate scenario. However, in the adverse scenario, Toronto could see its home prices decline by -18% in three years.

DBRS Morningstar

According to the report, all ten Canadian provinces would experience sharp recessions in 2020 even in the moderate scenario. However, the variation across the provinces largely reflects whether the province is an oil producer. For example, Alberta, Saskatchewan, and Newfoundland, and Labrador are projected to suffer the largest declines in GDP due to the added impact of low oil prices. 

The ratings agency said the scenarios are not forecasts, but rather, are benchmarks of moderate and “adverse” scenarios on which to base its debt-rating analysis.

Real Estate