Soft landing expected

Canada’s real estate market remains “relatively solid” and should experience a “soft landing” despite the current slowdown and fears of overbuilding in the condominium segment, the country’s leading bankers said Tuesday.

Canada’s real estate market remains “relatively solid” and should experience a “soft landing” despite the current slowdown and fears of overbuilding in the condominium segment, the country’s leading bankers said Tuesday.

Speaking to a RBC banking conference in Toronto, the country’s top bankers said they don’t expect a dramatic downturn like the one in the United States about five years ago.

The bursting of the U.S. housing bubble is considered a major cause of the credit crunch that swept Wall Street and then the global economy in the fall of 2008, after interest rates on sub-prime mortgages rose and defaults soared.

By contrast, sub-prime mortgages have been less common in Canada and real estate prices have trended upward for the most part — except for a few months during the 2008-9 recession and in some economically disadvantaged areas.

“Our expectation is that the overall real estate market in Canada is still relatively solid,” Royal Bank (TSX:RY) CEO Gord Nixon said Tuesday.

Despite reports that suggest Canadian housing is in crisis, he said the pullback is limited to a couple of markets, notably Vancouver.

“We have seen a slowdown in sales and we’ve certainly seen a slowdown in mortgage demand but price levels are relatively stable,” he said, adding that other than debt to disposable income, most indicators are in line with historic standards.

“So our expectation is we’ve got this sort of soft landing scenario on the real estate side.”

The head of Canada’s largest bank said he expects RBC’s consumer lending growth will slow to mid single digits but it should see a nearly double-digit increase in commercial loans.

Other banks are also seeing softening demand for consumer lending, with National Bank (TSX:NA) forecasting a 15 per cent reduction in the growth of retail lending this year in Quebec and a 30 per cent drop in Ontario.

Nixon said Royal has relatively small exposure to the condominium market at $1.2 billion of a $700-billion balance sheet and has requirements that protect it from troubled lenders.

“We’re not overly concerned with respect to condo itself because our relative exposures are quite small — on a relative basis, the smallest of the Canadian banks,” he said.

However, Nixon noted that a significant decline in the overall real estate market would have broader impact across the economy, which would hurt the banking industry.

Gerry McCaughey of CIBC (TSX:CM) said the bank hasn’t seen credit problems in condo construction but a slowdown could be a fairly significant economic event.

“Pure math says that a soft landing, if it means you go back historic levels of activity, that we’re going to have some softness in our economy,” McCaughey said.

“… That softness doesn’t necessarily come out in mortgage defaults, it comes out in employment softness and consequential unsecured consumer lending softness.”

Potentially offsetting the impact of the residential construction slowdown is new energy related infrastructure spending in Canada over the next five to seven years, McCaughey said, pointing to the Lower Churchill hydro power development and oil pipelines.

Bank of Montreal (TSX:BMO) CEO Bill Downe told the conference that BMO deliberately limited its exposure to the Canadian condo construction market at $700 million after watching some of the problems surface in the United States in 2007 and 2008.

The bank is active in the U.S. mortgage lending market in the Midwest through its Harris Bank subsidiary.

He doesn’t expect Canadian homeowner debt to keep growing at previous levels, which will avoid an “outright collapse in the market.”

“In fact, house prices may just stagnate. Condominium prices may just stagnate for a couple of years. And that’s the definition of a soft landing,” Downe said.

Downe predicted the overall U.S. housing market will show considerable strength this spring, stimulating commercial loans.

After a strong fourth quarter, Downe is anticipating that the American economy will be much stronger this year, which will put upward pressure on interest rates in both the U.S. and Canada.

“I think the U.S. economy is going to perform much better in 2013 than people are anticipating,” he said.

Scotiabank CEO Rick Waugh said he also foresees a soft landing for the Canadian condo market, which poses the greatest risk.

He watches 90-day delinquencies very carefully for signs of deterioration. “It’s elevated above 2007 levels but only a bit…it probably will come up a little bit but at levels that are well within our risk appetite,” Waugh said.

The Scotiabank (TSX:BNS) CEO denounced suggestions that Ottawa could privatize Canada Mortgage and Housing Corp., which he described as an integral part of the Canadian housing system that helped to ensure the country survived the housing crisis unlike a similar U.S. entity.

“It ain’t broke, it worked, it met the biggest stress test in our lifetime. Why fool around with it? It’s not a Fannie Mae.”

Ed Clark, president and CEO of TD Bank (TSX:TD), said he remains pessimistic about Europe’s ability to turn its problems around.

Meanwhile, he said Canada’s long period of growth that surpassed the U.S. is over, assuming politicians don’t make decisions to reduce short-term expansion.

“I’m more positive on the United States than I am on Canada in growth numbers,” Clark said.

Just Posted

Downtown Red Deer was packed with people who lined the streets to watch the Westerner Days parade on Wednesday. (Photo by SUSAN ZIELINSKI/Advocate staff)
Westerner Days parade cancelled, full details on modified event coming June 28

The 2021 edition of Westerner Days will look much different than any… Continue reading

City council wants to hear from the public at a May 25 hearing about whether the temporary homeless shelter should be allowed to remain in the downtown for another year. (Advocate file photo).
City of Red Deer staff to recommend another extension to allow operations at current temporary shelter site

Following some more research city administration has received no other new locations… Continue reading

A scene from the short Western ‘Cheaters, Robbers and Outlaws,’ written and directed by Jason Steele, with support from Telus Storyhive. (Contributed image)
Red Deerians make ‘Cheaters, Robbers and Outlaws’ short Western film

Writer and director Jason Steele received a $20,000 Storyhive grant from Telus

Residents in several neighbourhoods reported little to no water pressure Tuesday night. (File photo by Advocate staff)
City hall to reopen for payments and customer service

Red Deer City Hall will reopen on June 21 for utility and… Continue reading

Char Rausch was selected as this year’s recipient of the Bob Stollings Award, which goes to an employee who has displayed outstanding civic performance in alignment with The City’s Cornerstone Values – Respect, Integrity, Service and Excellence. (Photo courtesy City of Red Deer)
Char Rausch wins City of Red Deer Bob Stollings Award

The City of Red Deer is honouring employees differently this year. With… Continue reading

Montreal Canadiens goaltender Carey Price stops Vegas Golden Knights' William Karlsson as he is covered by Canadiens' Joel Edmundson during first period of Game 3 of the NHL Stanley Cup semifinal Friday, June 18, 2021 in Montreal. THE CANADIAN PRESS/Paul Chiasson
Andreson’s timely scoring, Price’s goaltending give Habs 2-1 series lead over Vegas

Canadiens 3 Golden Knights 2 (OT) (Montreal leads series 2-1) MONTREAL —… Continue reading

Atlanta Hawks guard Trae Young (11) is defended by Philadelphia 76ers guard Ben Simmons (25) as he looks for an opening during the first half of Game 6 of an NBA basketball Eastern Conference semifinal series Friday, June 18, 2021, in Atlanta. (AP Photo/John Bazemore)
Curry, Harris help 76ers stay alive, hold off Hawks 104-99

76ers 104 Hawks 99 (Series tied 3-3) ATLANTA — Seth Curry hit… Continue reading

Canadian Prime Minister Justin Trudeau is seen during a joint news conference following the EU-Canada Summit, in Brussels, Belgium, Tuesday June 15, 2021. Trudeau says Canada is on track now to have 68 million doses delivered by the end of July, which is more than enough to fully vaccinate all 33.2 million Canadians over the age of 12. THE CANADIAN PRESS/Adrian Wyld
Vaccine deliveries enough to fully vaccinate all eligible Canadians by end of July

OTTAWA — Prime Minister Justin Trudeau’s promise of a two-dose fall is… Continue reading

Marco Mendicino, Minister of Immigration, Refugees and Citizenship, speaks during a press conference in Ottawa, Thursday, May 13, 2021. Mendicino has announced a new policy to help settle 500 refugees and their families in a news conference today. THE CANADIAN PRESS/Sean Kilpatrick
Canada to welcome 45,000 refugees this year: Immigration Minister Marco Mendicino

Immigration Minister Marco Mendicino announced plans to expedite applications and increase the… Continue reading

Louis Oosthuizen, of South Africa, plays his shot from the third tee during the second round of the U.S. Open Golf Championship, Friday, June 18, 2021, at Torrey Pines Golf Course in San Diego. (AP Photo/Marcio Jose Sanchez)
Bland leads at Torrey and shows the US Open is truly open

SAN DIEGO — The U.S. Open prides itself on being the most… Continue reading

The Prime Minister's car waits outside the National Microbiology Laboratory in Winnipeg Tuesday, May 19, 2009. The head of the Public Health Agency of Canada is showing no sign he'll release unredacted documents about the firing of two scientists at Canada's highest security laboratory — despite the prospect of being publicly shamed in the House of Commons for his refusal to turn them over. THE CANADIAN PRESS/John Woods
PHAC head maintains he’s bound by law not to release docs on fired scientists

OTTAWA — The head of the Public Health Agency of Canada is… Continue reading

Chief Public Health Officer Theresa Tam listens to a question during a news conference, in Ottawa, Tuesday, Jan. 12, 2021. The number of confirmed COVID-19 cases attributed to the highly contagious Delta variant grew in Canada this week. THE CANADIAN PRESS/Adrian Wyld
Public health agency reports spike in confirmed cases of Delta variant in Canada

OTTAWA — The number of confirmed COVID-19 cases attributed to the highly… Continue reading

Various vaping nicotine e-liquids or "juice" are shown in a lab at Portland State University in in Portland, Ore., Tuesday, April 16, 2019. The federal government says it wants to ban most flavoured vaping products in a bid to reduce their appeal to youth. THE CANADIAN PRESS/AP-Craig Mitchelldyer
Health Canada proposes ban on most vaping flavours it says appeal to youth

The federal government says it wants to ban most flavoured vaping products… Continue reading

Most Read