An FCT leadership perspective: How lending in Canada can withstand housing shock

Apr 18th, 2016 | By Daniela DeTommaso

As spring approaches and brings all the related changes to Canada, we’re also seeing changes in the Canadian lending industry beginning to bloom. One key change is Ontario’s new $250,000 credit deposit insurance limit. By upping the limit, the credit union industry is hoping to attract more deposits and fund more mortgages at lower rates, while offering members the security they need to invest confidently in the housing market. This important development looks like just the beginning of what’s shaping up to be an interesting year ahead as the key players and pundits seek out new ways to secure Canada’s economy. If you’re a Twitter user, you may want to follow @Central1CU to for regular updates on this topic.

The resiliency of the Canadian financial system

The big banks were the focus of Bank of Canada deputy governor Larry Schembri’s remarks Feb 24, when he addressed the resiliency of the Canadian financial system in a speech with more than a few insights into the Bank’s strategic thinking for 2016 and beyond.

Schembri rated the odds of the Canadian housing market falling into a whirlpool of defaults and crashing property values as “low,” emphasizing that stricter regulatory hurdles have demonstrably raised lender resiliency when deals go sideways or die.

While not referencing any rate changes for the year ahead, Schembri did note that “the Canadian financial system is very resilient and could withstand the triggering of this vulnerability,” in household debt loads, noting that monetary policy is “a very blunt instrument to address financial stability.”

One indicator, however, did give Schembri pause: the rise in household debt has been led by highly indebted households for those under 45, with the Canadian household debt now running at 163.7% of after-tax income in Q3 2015, according to Statistics Canada. But Schembri’s speech did not seem to mirror that opinion and instead referenced falling commodity prices, especially energy prices, are a risk likely to surpass the risks of a housing bubble for 2016. In particular, Schembri urged provincial and securities regulators to assume the lead in tracking the volatility in the housing market, leaving the Bank of Canada to target stimulus, in-line with the Bank’s 2% annual inflation target.

And there seems to be more good news according to Schembri who believes that Q1 2016 results will show growth at a faster rate than the Bank’s projected annualized growth of 2%, a number he feels to be more reflective of a somewhat stalled Canadian economy in Q4 2015.

Do you think the current housing bubble is due to burst? Do you think our economy is strong enough to withstand a housing shock? I’d love to hear your opinion, so please feel free to comment below.

Categories: Real Estate