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Canadian Bankers Weigh In On Real Estate Market In Canada

Posted by Yoofi Gerard Hagan on Friday, January 11th, 2013 at 11:53am.

Those in the know now expect that Canada’s real estate market will not endure the predicted bubble, but rather will weather a softer landing. The market is still seeing a bit of a slowdown, largely due to the change in mortgage lending rules set down this past July.  But according to RBC, Royal Bank of Canada and other leading bankers a serious downturn such as that seen in the United States in 2008 is not likely.

That 2008 crash affected not only the United States’ economy but contributed to the global economic situation. Caused by an increase in mortgage rates that affected sub-prime mortgages and the resulting defaults, it was an economic disaster with effects still being felt in some places.

Canada does have a few sub-prime mortgages, but not nearly as many as in the United States. In addition, Canada’s real estate prices have seen a steady increase, with a few exceptions, one being the first few months of the 2008-2009 recession. Some of the less affluent areas of Canada also saw prices decrease, but not to the extent as seen in the USA.

Gord Nixon, from RBC, notes that Canada’s real estate market remains relatively solid. Exceptions include the once hot market in Vancouver, which has seen a slowdown in sales and prices higher than the national average. The debt to income ratio is a concern, and the only part of the equation that does not fall in line with historical figures.

Nixon, who heads RBC, noted that lending on the consumer side will most likely decrease, but on the commercial end there might be an increase. RBC does not deal in condos all that much with only $1.2 billion held in loans, out of a total of $700 billion in its loan portfolio. Their risk is minimal, thanks to internal safeguards.

But Nixon did note that if the real estate market saw an overall decline that was significant that it could affect the Canadian economy, thereby affecting the bank’s bottom line. Meanwhile RBC is working at improving performance in its banks sitting in the Caribbean.

Bill Downe of Bank of Montreal, also attending the same Toronto conference, noted that it too has limited loans out on condo properties, roughly $700 million. Harris Bank is the firm’s subsidiary in the United States and it does hold mortgages in the Midwest.  Downe is also confident in the market, in spite of the consumer debt issue, and does not feel a collapse in the market is imminent.

In the United States, his thinking is that the housing market will strengthen in the spring, spurring the need for more commercial lending. Downe noted that the last quarter of 2012 showed strong growth in U.S. real estate performance and that 2013 may show a better performance than expected.

Rick Waugh, CEO of Scotiabank, also agrees with the theory of a soft landing in the condo market in Canada. He does keep a close watch on delinquencies that hit 90-days and notes they are slightly above the numbers in 2007 but not by much. Waugh also discounted a rumor that Ottawa was thinking of privatizing the Canada Mortgage and Housing Corporation. CMHC is what keeps the Canadian housing market from falling into scenarios like in the United States’ real estate crash in 2008.

Scotiabank also owns 20 percent of the Bank of Guangzhou in China, for which it paid $719 million. The idea is to court wealthy Chinese middle class customers, which at this point may or may not be a viable option.

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