It’s unlikely to happen, but some of Canada’s largest mortgage lenders have been told to prepare for some seriously scary drops in home prices.
The Office of the Superintendent of Financial Institutions has told Canada’s banks that they should stress test for a 50 per cent decline in home prices in Vancouver and a 40 per cent drop in Toronto.
While many analysts have suggested a slide in prices in Canada’s hottest markets, the high figures OSFI is talking about are extremes, designed to ensure that banks are able to withstand a correction and then some.
For the markets to face a plummet in prices to those degrees would mean some significant economic issues in play which are unlikely, as BMO Capital Markets’ senior economist Benjamin Reitzes told BNN:
“Getting prices to fall to that extent would either take a massive jump in interest rates, which I don’t think anybody sees, or a very significant recession – which, again is not in our forecast or anybody else’s.”
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