Each week, Ratehub.ca delivers the Notable News. Our compilation of the week’s most relevant and up-to-date news from Canada’s mortgage and housing industry will help you stay informed. This week, Canada’s big banks face a drop in credit ratings by S&P, consumer debt continues to hit banks hard, Genworth, Canada’s second largest mortgage insurance provider, had their second-quarter earnings fall, and condo investors could earn significant returns on their investments.
S&P drops credit ratings of Canada’s big banks from stable to negative – Vancouver Sun
Canada’s rising consumer debt and high housing prices are leaving its banks vulnerable, according to Standard & Poor credit rating agency. Seven of Canada’s big banks including RBC and TD once had excellent credit ratings, but that recently changed when S&P dropped them from “stable” to “negative.” The banks face risks associated with the pullback in consumer borrowing and a downturn in the housing market which are factors reminiscent of the U.S.-style housing crash.
However, Routledge says, “we are not going to have a massive wave of credit losses impacting the balance sheets of Canadian banks, because of the prevalence of mortgage insurance.” Canadian banks are backed by the federal government through mortgage insurance issued by the CMHC, unlike the U.S. banks before 2009 financial meltdown. Still, Lewandowski said the negative outlook imposed by S&P adds to the growing concern about Canada’s housing market and record consumer debt.
Consumer debt eroding Canada’s banks – Bloomberg
Mark Carney, governor of the Bank of Canada says the country’s rising household debt poses the greatest threat to Canada’s financial stability. Record consumer debt and a vulnerable housing market has Canadian banks under performing global counterparts as debt yields of the country’s financial companies resulted at 158 basis points over federal benchmarks, compared with 257 basis points for international financial firms, according to Bank of America data.
Genworth second-quarter earnings slip; investment income – Canadian Business
Genworth, Canada’s second largest provider of residential mortgage insurance reported an 11% slip in its second-quarter earnings to $79 million. They also reported $48 million losses on claims, down from $50 million, which is a positive sign that less people are defaulting on their loans. Brian Hurley, chairman and chief executive officer of Genworth says, “We continue to capitalize on strong business momentum during the second quarter and delivered top line growth, lower losses and claims, and strong bottom line profitability. Our prudent approach to risk management helps drive consistent results.”
Condo investors have something to smile about – Canadian Real Estate Magazine
Two independent bank reports suggest condo investors’ assets will most likely retain their value and their cash flow will be supported by rental demand. Those who bought new condos and rented them once construction was complete could earn superior returns, according an analysis by Laurentian Bank. With condo rents 40% more expensive than apartment rentals of similar sizes within the Toronto CMA, condo investors should be reaping the rewards.
One economist was quoted as saying, “based on market activity to date, the total number of new housing units (condos) completed by builders has not exceeded the GTA’s demographic requirements and is unlikely to do so by any significant magnitude in the next few years.” Such an analysis counters fears that Toronto’s condos will fall in value.