Fitch: Reduced Near-term Risks Of Housing Bubble

In a brief news release today, Fitch Ratings stated that the “early signs of a cooldown in the housing market could be generally positive for the stability of the Canadian banking system and the sustainability of economic growth, though the full extent and pace of the housing correction remains unclear.”

Citing CREA’s most recent sales report, the ratings agency added that, “the latest sales numbers provide some initial evidence that risks of near-term overheating in the Canadian housing market may be subsiding.  This could be a positive development for Canadian financial institutions as long as the labor market remains relatively stable. ”

The reduced near-term risk of a housing bubble will likely take some pressure off the Bank of Canada to tighten monetary policy.

You can read the news release here

About Fitch Ratings:  Dual-headquartered in New York and London with over 50 offices worldwide, Fitch Ratings is a global rating agency “dedicated to providing value beyond the rating through independent and prospective credit opinions, research and data.”

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2 responses to “Fitch: Reduced Near-term Risks Of Housing Bubble

  1. Here’s a different viewpoint from a report out today by Capital Economics:

    Housing correction only just beginning
    Canada’s already lacklustre rate of economic growth is only going to slow further as the housing correction intensifies. Home sales are now falling sharply and it is only a matter of time before prices begin to decline. We still believe that house prices will eventually drop by as much as 25%. In addition, the further deterioration in the global economic outlook suggests that Canada’s exporters will come under even greater pressure. Overall, we expect annual GDP growth to slow from an already modest 1.9% in 2012 to only 1.2% in 2013.

  2. My answers to these questions in the shortest possible form are, “no,” “no,” and “no.” … In answer to the first question on the size of the effect, it could be large enough to feel like a good-sized bump in the road, but the economy would likely to be able to absorb the shock… In answer to the second question on timing, the spending slowdown that would ensue is likely to kick in gradually… That would give the Fed time to cushion the impact with an easier policy. In answer to the third question on whether monetary policy is the best tool to deflate a house-price bubble, … For one thing, no one can predict exactly how much tightening would be needed, or by exactly how much the bubble should be reduced. Beyond that, a tighter policy to deflate a housing bubble could impose substantial costs on other sectors of the economy that would lead to equally unwelcome imbalances. Finally, it’s possible that other strategies, such as tighter supervision or changes in financial regulation, would not only be more tailored to the problem, but also less costly to the economy. Taking all of these points into consideration, it seems that the arguments against trying to deflate a bubble outweigh those in favor of it. … But let me stress that the debate surrounding these issues is still very much alive.

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