Ratings agency Fitch says that the latest BoC interest rate cut underlines its view that the Canadian housing market is over-valued by around 20 per cent. Its assessment is that the rate cut will do little to help affordability for borrowers with low impact on mortgage rates. In addition, the weakness in the Canadian economy which led to the cuts this year increases the risk of market declines. On a positive note Fitch says that the Canadian mortgage industry is not overly exposed to riskier lending with high possibility of default.
The agency’s report highlights that there are provincial variations in the level of over-valuation with Alberta showing some decline and Quebec broadly flat while Toronto and Vancouver continue to see higher prices. Overall, Fitch calls for a soft-landing for the Canadian housing market with modest declines in prices over the medium term; it says that significant downturns remain “unlikely”. The markets most exposed are those that have been dependent on “robust construction and real estate activity” in recent years.
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