Credit rating still foresees capital levels to remain strong
A new Moody’s report has revealed mortgage underwriting and investor risk are projected to increase with the decline of housing affordability in both the US and Canada.
The rating agency said that both countries would be impacted by home prices rising at the same time as interest rates, with mortgage quality weakening and originations slowing – leading to risk for both securitizations and lenders.
At the same time, Moody’s foresees that “declining mortgage originations will weaken lender revenue and residential mortgage-backed securities issuance.”
“In Canada, mortgage delinquencies will rise and builder revenue will decline,” the report noted. “However, long-term fundamentals and certain regulations remain positive for the housing market. Also, even if bank credit losses rise, capital levels will remain strong.”
On the other hand, the decline in housing affordability will increase the demand in rentals underlying real estate investment trusts and commercial mortgage-backed securities.
Canada has seen interest rates surge over the past 16 months, with the Bank of Canada introducing a series of rate hikes aimed at bringing down inflation and cooling an economy that continued to operate at a level well beyond its expected clip.
Home prices plummeted across many markets in 2022 before beginning to rise again this year as activity began to heat up.
