Canadian Lending Practices under the Microscope

Vancouver RealtorsAccording to recent reports, Canadian lending practices are causing some concern amongst officials.  Some banks seem to have loosened their lending practices, a process which is being deemed an ‘emerging risk’ by the nation’s regulator.

While Canada’s banks and other lenders are giving out credit more liberally than before, some feel that Canada is nowhere near the crisis that faced the U.S. after the subprime mortgage fiasco.  Even Vancouver’s hot market is not seen to be at major risk with homes for sale Vancouver and condos for sale Vancouver continuing to sell at good prices.

Others, however, say that the home-equity lines of credit are particularly liberal and therefore worrying.  In certain cases individuals are not required to provide proof of income for these.  This kind of ‘no-income’ lending is certainly a risk factor, according to regulators.

The easing of lending standards across the board has some market specialists concerned.  Some economists say that Canadian housing prices may see a decline by as much as twenty-five percent over the next few years.

Consumer and household debt levels have reached record levels making it one of the major causes for concern.  While low interest rates have kept the housing market afloat, some say this can’t go on forever.

Classic warning signs of a real estate bubble include high prices, high ownership rates and overbuilding.  According to real estate experts this is certainly at play in Canada.

Of course, most concerning of all is the level of debt that some of the most vulnerable are taking on.  Those with debt ratios reaching forty percent of their income would be the most damaged by any kind of economic shock and this number is getting higher each year.

Canadian debt levels reached a record level at about 153% of their disposable income.

The slacker standards of lending thus have many officials worried; however, even the most vulnerable loans aren’t the same as the subprime mortgages in the U.S.  While some of the home-equity lines of credit are nevertheless by definition, non-prime, these remain a very small percentage of the overall market.

The Toronto Dominion bank reported that the average Canadian home is probably overvalued by ten percent.  Vancouver condo markets and Toronto housing markets are said to be at risk of a correction.  And while no one really knows what to expect, most realtors Vancouver are confident that the Vancouver market will not be subject to any major declines in the longer term.

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