“Canada’s two largest banks, the Royal Bank of Canada and Toronto-Dominion Bank… both said they have seen a distinct slowing of the Canadian housing market in recent months.
A slowdown will have an impact on TD and RBC alike, since they are among the biggest mortgage lenders. However the banks said efforts by Ottawa to cool the market in recent months through new lending guidelines and the elimination of 30-year mortgage amortizations last year, are better for the sector and the economy in the long run.
“Where the direct costs to the banks of a sharp correction will be quite absorbable, the effects of a large correction on the economy warrant prudence,” Mr. Clark said. “At the moment we see signs that the housing market is slowing, and the risk of a sharp correction are diminishing.”
Questions have arisen this year about potential overheating of the housing markets in Vancouver and Toronto, particularly involving condo sales. RBC’s head of retail banking, David McKay, said the bank is watching those markets carefully.
“There are a couple of hot spots across the market that we are watching closely,” Mr. McKay said. “But you can’t really generalize across the country. So it’s very important that you maintain kind of a regional and at times city-specific strategy.”
– from ‘Banks brace for economic headwinds’, G&M, 24 May 2012
This is an expression of hope for a ‘soft landing’.
We would like to see the models that the banks are using to show that, with sales falling and prices beginning to fall, the risk of further price drops decrease.
We ourselves see the markets set-up for price falls begetting price falls, and think that the risk of a “sharp correction” has increased with the market slowing.
Anyway, we’ll see how this plays out.