The Canadian housing sector continues to cement its status as one of the pillars of the national economy, following an outlook report that revealed the central role that mortgages are playing in the federal financial system.
In a January 9 press release disseminated via Business Wire
, the Kroll Bond Rating Agency stated in its 2017 Canadian Banking Outlook report that real estate is helping keep the economy afloat through vibrant activity.
“Partially mitigating housing market concern is the high proportion of mortgages insured by the Canada Mortgage and Housing Corporation (CMHC), a Crown corporation, and the generally sound mortgage underwriting practices in Canada, especially relative to the U.S. before the 2008 financial crisis,” the report stated.
However, KBRA warned that the sector “remains frothy and is susceptible to negative trends in commodities particularly if these developments translate to higher unemployment over time.”
Thankfully, the other major contributors to Canadian economic health should offer a measure of comfort.
“[The] Canadian economy is exposed to energy, mining, and other commodities sectors which would likely impact asset quality, particularly if a negative trend in commodity prices is re-established,” the report explained. “Commodity prices have generally rebounded from lows early in 2016 and many banks have already absorbed considerable losses related to direct exposure to commodity and related industries.”
Overall, KBRA’s outlook “remains moderately negative for Canadian banks, reflective of the following factors: potential asset quality risks, uncertainties surrounding government support, relatively high levels of household debt in Canada, a sluggish Canadian economy, and vulnerability to any renewed pressure in commodity prices.”
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