A real estate sign is displayed in front of a house in the Riverdale area of Toronto on Wednesday, September 29, 2021. Canada's bank regulator says it is preparing for weakness in the housing market to potentially last throughout 2023 as it flags the sector as a growing concern. THE CANADIAN PRESS/Evan Buhler
TORONTO – Canada’s bank regulator says it is preparing for weakness in the housing market to potentially last throughout 2023 as it flags the sector as a growing concern.
The Office of the Superintendent of Financial Institutions says in its latest annual risk outlook that, while not making any forecasts, the housing market is its top source of worry as high rates mean higher default probabilities.
Superintendent Peter Routledge however says that so far credit quality still looks quite strong, and residential real estate remains sound, as the overall economy shows resilience and unemployment stays low.
Routledge says the effects of high interest rates on credit quality have so far been far more benign than what observers might have predicted, but that risks are still out there.
He says that to better prepare for future risks the regulator is working through its review of the B-20 mortgage underwriting rules, as well as taking a closer look at how banks are handling variable rate fixed-payment mortgages.
Other key areas of concern identified by the regulator include liquidity and funding risk, commercial real estate weakness, transmission risk from private credit, digitization of finance, climate change, cybersecurity and third party risks from banks relying on systems like cloud computing.
This report by The Canadian Press was first published April 18, 2023.
