Can Canadian Banks Cope with Falling House Prices?

House prices continue to deflate in Canada. They fell 5.8% during the 12 months to March, according to the Teranet–National Bank National Composite House Price Index. Last month the 12-month decline was 4.1%.

Calgary is no longer leading the trend downward. That honor now belongs to Vancouver, which dropped 9.6%. Next came Calgary (−8.4%), Toronto (−6.9%) and Halifax (−0.8%). Just two cities managed to stay in positive territory: Montreal (2.9%) and Ottawa (1.0%).

All cities in the index are down from their peak levels. Calgary, Vancouver and Toronto are off their peaks by more than 10%. This is beginning to look like a U.S.-style retrenchment — only with a lag of 12 to 18 months. For more detail, see the charts (from housepriceindex.ca) below.

Much has been made of the resiliency of Canadian banks in the midst of the global financial meltdown. But was it, in part, based on a delayed tumble in house prices? Now that the Canadian market is beginning to resemble the U.S. market, will Canadian banks be able to keep a stiff upper lip?

(Click to enlarge)

National level

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More On The Misallignment Of The US Treasury And US Taxpayer Interests (Zero Hedge, 5/15/09)

Read more on Investing in Canada, Banking, Halifax at Wikinvest

Comments

[Donald Ingram]

All rapid decreases in prices usually overshoot below their trend lines. You will notice your charts are no different, with the exceptions of Montreal and Ottawa who's down movement is just approaching the trend line.
You will also notice that the average price fall per house from peak is just 8.5%. Nowhere near the drastic fall in value as seen in the States, with a further drop of 24.% to 36.7% fore casted over the next two years!
Also under Canadian banking regulations, the "second paper" must meet rigorous guidelines before issuance. Unlike the "easy" credit in the States that was handed out to anyone with a mortgage. People used their houses as debit/credit cards. Many vehicles were purchased using the home equity loans.
So therefore the Canadian home owner has a lot more 'wriggle' room than his counter part in the States who's debt load commonly approaches 80% of the assessed value of the property.

Canada's financial sector is suffering along with it's citizens, however nothing like their Southern neighbors. Good luck.

2009 May 28 02:42 AM

[Trane250]

There's a show on the H&G cable channel called "property virgins." The show features first time mostly Canadian home buyers. From watching the show, it seems to me that the price of housing in the Toronto area is absurdly high even in Canadian dollar terms. It's a sure bet that Canadian banks are gonna feel a lot more pain on the housing front.

2009 May 28 10:00 AM