Fitch Says Risk is Mounting for Canadian Housing But Unlike US Housing Crisis

Unsustainable home prices and record high household leverage render the Toronto and Vancouver housing markets increasingly vulnerable to a steep price correction, though key structural features will safeguard Canada from repeating the U.S. housing crisis, according to Fitch Ratings in a new report.

Home prices in Toronto and Vancouver are up 45% and 36%, respectively, since January 2015 through May of this year. Additionally, household debt to disposable income remains elevated at 167% in 1Q17, the highest amongst G7 sovereigns.

usdcad Canadian dollar graph, June 22, 2017

Mortgage-market reforms are also increasing the focus on a private label RMBS market in Canada. This will inevitably draw comparisons by some in the market to the U.S. RMBS market and the influential role it played in the U.S. housing crisis a decade ago. “However, Canada is unlikely to mirror the declines and fallout experienced during the U.S. housing crisis due to major differences in the housing and mortgage finance systems,” said Fitch Director Kate Lin.

“Canadian banks are subject to rigorous oversight and regulations requiring prudent mortgage lending and underwriting standards,” added Lin. “What’s more, credit quality for Canadian mortgage loans remains strong unlike the drift towards weak borrower and loan quality that we saw a decade ago in the U.S.” Further, nonprime credit quality originations in Canada are low, making up approximately 10% of volume compared to 50% in the U.S. during the peak. The Canadian government has also been proactive in managing the risk of the nation’s housing market by taking unprecedented steps to tighten credit and limit speculation.

via FitchRatings

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza