Housing crash? No problem for Canada’s banks, says Moody’s

If home prices across Canada dropped 25%, and if hot markets in Ontario and British Columbia saw an additional 10% dip, total direct losses for the banking system would reach almost $18 billion, says Moody’s in a new report.

Read: Risk of housing correction higher for Toronto, Vancouver: BoC

But the banks would be able to generate internal capital to cover those losses within several quarters, the ratings agency adds. As such, Canadian banks could weather the effects of a severe housing crisis despite soaring home prices and household debt levels.

Read: Canadian household debt remains at record levels

Moody’s says the negative impacts of a housing downturn in Canada would be reduced due to a number of factors that differentiate Canada from U.S. mortgage markets. Those factors include:

• government-guaranteed mortgage creditor and lender insurance;
• lower rates of subprime lending; and
• a lower prevalence of certain kinds of securitization practices.

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Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.