Fitch Ratings released a report Monday stating that the Canadian banks have yet to experience a significant decrease in their mortgage sales, despite the increase in interest rates that many thought would price consumers out of the market; though the agency does believe there is a possibility that the effects will be felt in the months to come.
“Canada's largest 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,” the report stated. “Still, Fitch Ratings sees the potential for both increasing household leverage and rising rates to begin affecting mortgage banking results in the coming quarters.”
Debt is continuing to rise in Canada, leading many to believe a downturn in the housing market is inevitable.
“Statistics Canada reported in September that the ratio of household debt to income rose to a record high of 163.4 per cent in the second quarter, up from 162.1 per cent in the prior quarter. In part, the increase in household leverage may have reflected normal seasonal patterns, as home-buying activity picked up in the spring,” the report read. “In addition, borrowers may have been pushed into the market as rates began to rise in May and June.”
And with housing prices rocketing to level highs, affordability for the average Canadian because a bigger question mark.
“Canada's home-price index hit another record in August, suggesting that rising mortgage rates are not yet having a significant impact on overall housing market demand. 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.”
For its part, Fitch believes the housing market is due to level out in the next 24 months, which would have a negative impact on Canadian banks and, it logically follows, brokers.
“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 unfavourably impact both earnings and balance sheet ratios of the largest Canadian banks.”