Risk mounts for Canada housing: Fitch

The Canadian housing market is facing rising risks of a correction, but a full-blown U.S.-style crisis is still not in the cards, says Fitch Ratings.

Unsustainable home prices and record high household leverage, “render the Toronto and Vancouver housing markets increasingly vulnerable to a steep price correction,” the rating agency says in a report published on Thursday.

Home prices in Toronto and Vancouver are up 45% and 36%, respectively, since January 2015, the report notes. At the same time, household debt is sitting at 167% of disposable income, which is the highest level among the G7 sovereigns.

Nonetheless, key features of the Canadian sector will protect it from suffering a repeat of the U.S. housing crisis, the report says.

“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,” says Kate Lin, director at Fitch, in a statement.

“Canadian banks are subject to rigorous oversight and regulations requiring prudent mortgage lending and underwriting standards.”

Additionally, 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,” Lin adds.

Subprime loans only make up approximately 10% of new mortgage volume, compared to 50% in the U.S. during the peak, the Fitch report says.

As well, the Canadian government has been, “proactive in managing the risk of the nation’s housing market by taking unprecedented steps to tighten credit and limit speculation,” the report says.

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