CIBC: No Debate That Housing Market Is Overshooting

In their Household Credit Analysis report out today, CIBC writes:

As for the housing market, there is no debate about the fact that the market is overshooting. The only question is what will be the nature of the adjustment.

It appears that we are at a turning point in the real estate market. Recent signals from the market suggest that activity is slowing down. The number of unit sales is now rising by a smoothed year–over-year rate of just over 3%

Mind you, Calgary sales are bucking the national trend and heating up. April sales were up 26% from the previous year and so far in May, up 35%.

CIBC continues:

In the absence of a trigger for a violent correction, we do not see such an outcome in the near future. We continue to call for a gradual softening in the market, with prices potentially falling by around 10% in the coming year or two.

Other factors that will work to soften activity in the market are ongoing changes in the mortgage market with increased scrutiny from regulators regarding risk management practices, as well as the increased use of full-scale appraisals as part of the adjudication process.

Much of the report is just a Canada-wide generalization without city-specific forecasts, although Alberta was highlighted for an undesirable accolade:

The arrears rate in Alberta is by far the highest in the nation. This reflects the fact that, on average, homeowners in Alberta are younger and less established. As well, the pre-recession period in Alberta had seen activity surging rapidly — leading to a higher percentage of consumers overextending themselves to speculative investment activity and excess.

You can read the entire report here

How vulnerable are Canadians to higher rates? TD tackles the question in their recent report, ARE CANADIANS PREPARED FOR HIGHER INTEREST RATES?

While the majority of Canadians appear to be well positioned to absorb a rate increase of around 2 percentage points, there is a substantial minority that cannot. According to the Canadian Association of Accredited Mortgage Professionals, roughly 21% of current mortgage holders, equating to roughly 1.2 million mortgages in Canada, may face financial difficulties with such an increase.

Bank of Canada research also provides a similar figure. Their analysis suggests that as many as 7.5% of households could be put into a financially difficult position if interest rates normalize.

Factors that will limit those at risk is the speed of which rates will be raised (presumably gradually) and how far the Bank of Canada is willing to raise them while being cognizant “that raising rates too far, too fast would potentially spark a substantial amount of household deleveraging.”

You can read TD’s report here

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