Canada: Housing Market is The Top Risk to the economy
The release of the latest annual risk outlook by the OFSI has brought to light the growing concerns around the housing market and the probability of higher defaults when interest rates rise.
Canada's banking regulator, the Office of Financial Institutions Supervisors (OFSI), is preparing for stress in the housing market that is likely to persist throughout 2023. The release of the latest annual risk outlook by the OFSI has brought to light the growing concerns around the housing market and the probability of higher defaults when interest rates rise. The outlook serves as a reminder that financials might appear stable, but risks still exist.
One of the reasons for the concerns around the housing market is the high level of consumer debt, which is not sustainable in the long run. Although credit quality is good and the residential real estate market is stable, the OFSI is reviewing B-20 mortgage underwriting rules and conducting public consultations to better prepare for future risks.
The regulator is also keeping a closer eye on how banks handle variable-rate fixed-payment mortgages. While this mortgage product is not an immediate concern, it could become an issue in the next two to three years as initial terms are set, revalued, and borrowers feel the impact of higher interest rates.
The OFSI is actively assessing the risk and looking into whether banks are dedicating enough funds to potential problems from borrowers with this mortgage product. The goal is to control risks around high levels of consumer debt and prepare for an uncertain future in the housing market.
The OFSI's latest annual risk outlook has highlighted the growing concerns and risks associated with the housing market in Canada. However, by reviewing mortgage underwriting rules, conducting public consultations, and actively assessing the risk associated with variable-rate fixed-payment mortgages, the regulator is taking proactive steps to mitigate future risks and ensure financial stability in the years ahead.
Canada: Housing Market is The Top Risk to the economy
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