The most recent Bank of Canada rate cut highlights the current risks to the Canadian economy, according to one organization, arguing the housing market is 20 per cent overvalued.
Fitch ratings believes the Canadian housing market is at risk of only a slight correction.
“Overall, Fitch continues to expect a soft landing nationally, where the price growth that has characterized the country's housing markets for more than a decade will abate, with modest declines to follow,” Fitch wrote in a recent release. “While Fitch expects modest price declines in the medium term across the country, significant downturns remain unlikely. But, downside risks exist, particularly in markets that have been dependent on robust construction and real estate activity in recent years.”
Certain markets are more susceptible, according to Fitch.
Alberta, which has been plagued by low energy prices will continue to experience housing price volatility. Prices have been down three per cent since October 2014.
And brokers can expect even more shocks to the market, according to one player.
“I don’t think we’ve seen the last of the layoffs (in the oil industry),” Calgary-based broker Luke Wile told MortgageBrokerNews.ca. “Once the layoffs have all been made and the nine month (severance) packages have lapsed we’ll see bigger effects.”
Vancouver and Toronto, meanwhile, are better safeguarded by strong economies and population growth.
“Fitch views housing markets nationally as approximately 20 per cent overvalued in real terms, with modest variation across provinces. However, a number of positive market factors are expected to moderate any negative price pressure,” Fitch wrote. “Most importantly, the Canadian mortgage market does not have significant exposure to riskier mortgage products that would be at high risk of default.”
The Bank of Canada lowered its target for the overnight rate to 0.5 per cent last week, and several big banks followed with slashes to their respective prime rates.
TD Bank was the first, lowering its rate by 10 basis points to 2.75 percent. RBC and the Bank of Montreal followed with 15 basis point cuts of their own, lowering prime to 2.70 per cent.
“Overall, Fitch continues to expect a soft landing nationally, where the price growth that has characterized the country's housing markets for more than a decade will abate, with modest declines to follow,” Fitch wrote in a recent release. “While Fitch expects modest price declines in the medium term across the country, significant downturns remain unlikely. But, downside risks exist, particularly in markets that have been dependent on robust construction and real estate activity in recent years.”
Certain markets are more susceptible, according to Fitch.
Alberta, which has been plagued by low energy prices will continue to experience housing price volatility. Prices have been down three per cent since October 2014.
And brokers can expect even more shocks to the market, according to one player.
“I don’t think we’ve seen the last of the layoffs (in the oil industry),” Calgary-based broker Luke Wile told MortgageBrokerNews.ca. “Once the layoffs have all been made and the nine month (severance) packages have lapsed we’ll see bigger effects.”
Vancouver and Toronto, meanwhile, are better safeguarded by strong economies and population growth.
“Fitch views housing markets nationally as approximately 20 per cent overvalued in real terms, with modest variation across provinces. However, a number of positive market factors are expected to moderate any negative price pressure,” Fitch wrote. “Most importantly, the Canadian mortgage market does not have significant exposure to riskier mortgage products that would be at high risk of default.”
The Bank of Canada lowered its target for the overnight rate to 0.5 per cent last week, and several big banks followed with slashes to their respective prime rates.
TD Bank was the first, lowering its rate by 10 basis points to 2.75 percent. RBC and the Bank of Montreal followed with 15 basis point cuts of their own, lowering prime to 2.70 per cent.
