Notable News of the Week: June 15, 2012
Every week, Ratehub.ca brings you the Notable News of the Week. We compile and summarize the most interesting and relevant headlines to keep you informed with the latest from the Canadian mortgage and housing industry. This week, reports suggest the bidding war frenzy is calming down, that current housing affordability could actually be worse than we think, and Toronto Mayor Rob Ford proposes to eliminate the land transfer tax by 2013.
Canada’s big banks could withstand $41B in housing market – Bloomberg
Fitch Ratings Ltd. tested five stress scenarios and predicted that Canada’s six biggest banks could survive a residential real estate loss of $41.5 billion. Of the biggest lenders, Royal Bank would be hit the most with the largest absolute drop in capital under the most severe scenario, according to Christopher Wolfe, managing director of Fitch’s financial institutions group. However, Wolfe said “even a 10% loss rate wouldn’t necessarily hurt any of the major banks that significantly.”
Concerns for Toronto’s condo market is growing – Reuters
Developers, realtors, bankruptcy specialists and salesmen say the city’s condo market is not in a bubble, but express their concerns. Toronto has 325 condo projects on the market, plus another 173 under construction – the most of any other city in Canada. The boom in condo construction, coupled with rising house prices and historically low mortgage interest rates, have buyers taking on dangerously high levels of household debt. Steve Gagro of Laurentian Bank says “uncertainty (about the condo market) is increasing potential risk associated with lending.”
McGuinty government to modernize Condominium Act – Ontario News
The Condominium Act of 1998 is set to be modernized to reflect the current and future needs of owners, residents and other stakeholders in the condo community. Ontario will launch a public consultation to identify a issues and potential long-term solutions to matters such as:
- consumer protection for buyers
- condo finances and reserve fund management
- condo board governance
- expertise/accreditation of condo managers
- dispute resolution, for instance between condo boards and owners
The review will engage the condo community and give them the opportunity to voice their issues and concerns so they can all work together and find solutions. Details of the public engagement process and information about how to participate will be announced later this summer.
New and existing home markets to moderate as year ends – Canadian Business
The CMHC recently raised its expectations for housing starts this year, but also expects both new and existing home markets to moderate in the coming months after a strong start early in the year. Some economists warn that the market is overvalued. CMHC deputy chief economist Mathieu Laberge says “balanced market conditions in the existing home market will result in modest house price gains through to the end of the year.”
The big banks have diminished lending to self-employed borrowers and the mortgage broker channel due to the reduced availability of mortgage insurance from CMHC and increased regulatory scrutiny from OSFI. With more mortgage consumers being denied lending by the bigger banks, alternative lenders will reap the benefits.
The metropolitan regions of Toronto, Oshawa, and Edmonton were the main contributors to the March to April increases.
Housing bubble fears a boon for alternative lenders – Financial Post
The big banks have diminished lending to self-employed borrowers and the mortgage broker channel due to the reduced availability of mortgage insurance from CMHC and increased regulatory scrutiny from OSFI. With more mortgage consumers being denied lending by the bigger banks, alternative lenders will reap the benefits.
Shock scenarios could become reality in Canada – Winnipeg Free Press
Canadian households could soon be hit with a big shock in their finances. One shock scenario is that any spill-over from the European crisis could carry over to North America – but it is first expected to rock the US’s banking sector before hitting Canada. In that scenario, already debt-burdened households could potentially default on their mortgages and Banks would start tightening their lending further, jobs could be lost, and the housing market would experience a freeze as fewer people would be able to buy homes. The Bank of Canada went even further in its analysis, saying “households could be hit by two interrelated shocks – a big drop in house prices and a sharp deterioration in labour-market conditions.”