The mortgage business of Canada’s big banks has held up despite rising rates, but Fitch Ratings doesn’t expect that to last.
The rating agency said Tuesday that the big banks “have yet to report a significant slowdown in mortgage activity, as rising interest rates have failed to quell housing demand and home prices have continued to rise through the summer.”
Indeed, it reports that mortgage balances grew in the third quarter “as consumers re-entered the housing market to lock in rates, possibly fearing that they would rise further. This activity supported the mortgage business as well as some additional covered-bond issuance.” Additionally, Fitch notes, loan loss provisions remained “very modest as overall credit quality and home prices continued to be strong.”
Indeed, it says that market conditions have remained “favorable”, despite high consumer debt levels, rising inventories in some markets, and policymakers’ efforts to slow activity in the Canadian housing market.
“However, as affordability becomes a bigger issue for borrowers, we expect some additional pressure on mortgage origination volumes, and perhaps home prices in certain geographies, over the balance of the year and moving into 2014,” Fitch says.
And this is expected to begin affecting mortgage banking results in the coming quarters. “We continue to believe, in general, that the Canadian housing market and mortgage balances will begin to plateau over the next one to two years, which would unfavorably impact both earnings and balance sheet ratios of the largest Canadian banks,” it says.