Mortgage risk is rising among Canadian financial institutions that aren't regulated by the federal government, warned the chief executive of the country's state-owned mortgage insurer, in a speech on Tuesday.
Canadian consumers are loading up mortgage debt relative to their incomes and borrowing for longer terms as house prices surge, said Evan Siddall, CEO of the Canada Mortgage and Housing Corp.
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Loan-to-income ratios climbed to 296% in 2016 from 271% in 2014, while the number of mortgages that amortize in more than 25 years rose to 63% from 52%, according to CMHC data.
That riskier activity is exposing lenders to a housing market that many say is experiencing bubble-like conditions, particularly in Vancouver and Toronto. Mr. Siddall noted the "growing risks" in Canada's housing market, and said federal regulators have tried to curb risk by demanding banks boost their mortgage lending standards but those rules apply only to federally regulated firms. Those include Canada's six largest banks, while credit unions, which are regulated by Canada's provinces, aren't subject to the new, tougher standards.
Mr. Siddall said recent moves that the federal government and provincial authorities have taken to curb housing prices has lowered the volume of mortgages the CMHC has insured.
The CMHC offers mortgage insurance to borrowers who can't put up 20% or more of the down payment of their homes. The federal government fully backs the insurer.
Although Mr. Siddall suggested the government's moves have worked for the federally regulated sector, private-sector analysts argued in two separate reports issued Tuesday that risks remain high.
Fitch Ratings noted, for example, that housing remains the main risk for Canada's banks in 2018. The firm's analysts cited the banks' sound capital and solid liquidity positions, as well as a concentrated banking sector, in forecasting a stable outlook for the banks next year.
"However, record household debt and high housing prices, particularly in Toronto and Vancouver, create risks for banks," Fitch's report said. Rising interest rates, the potential for an economic slowdown and new mortgage underwriting rules, may cool the housing market, Fitch said.
In another report, Benjamin Tal, an analyst for Canadian Imperial Bank of Commerce, said recent moves to slow the housing markets may not be enough to offset longer-term trends of increasing demand and shrinking supply that will continue to push up housing prices.
"The supply issues facing centres such as Toronto and Vancouver will worsen and demand is routinely understated," the report said. "Short of significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure."
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(END) Dow Jones Newswires
November 14, 2017 16:56 ET (21:56 GMT)