John Green­wood – Finan­cial Post

Despite soar­ing mort­gage lend­ing, Cana­dian banks are strong enough to absorb any hit that might result from a poten­tial real estate cor­rec­tion, said Ed Clark, chief exec­u­tive of Toronto-Dominion Bank.

Com­ment: Which is a moot point since there is not going to be a cor­rec­tion. Prices might – and I stress MIGHT – flat­ten, but that is about it.

Unlike U.S. banks, lenders on this side of the bor­der did not get involved in the kind of risky prac­tices that helped drive the U.S. hous­ing boom of the pre­vi­ous decade and that ulti­mately caused so much car­nage when the cri­sis hit in 2008, Mr. Clark told share­hold­ers at TD’s annual meeting.

Cana­dian banks didn’t require gov­ern­ment bailouts and were able to go out into the mar­kets and raise sig­nif­i­cant cap­i­tal to for­tify their bal­ance sheets over the last few years.

If the hous­ing mar­ket cor­rects, the big banks are strong enough “that they could absorb that hit,” he said.

In answer to a share­holder ques­tion, Mr. Clark acknowl­edged that there are “slightly dif­fer­ent views” about where the hous­ing mar­ket is headed, but he noted that “we all think that Canada is not at risk of a U.S.-style meltdown.”

Com­ment: And that is the #1 point – our mar­ket will not crash. I will bet good money we do not even see a small down­turn. Maybe in some local mar­kets, but not in Toronto for instance.

Even if real estate does cor­rect, the drop won’t be as severe as the U.S. expe­ri­ence and banks will be pre­pared to absorb any poten­tial losses owing to their strong cap­i­tal positions.

Bank of Canada Gov­er­nor Mark Car­ney has warned that ele­vated con­sumer debt lev­els rep­re­sent the biggest domes­tic risk to the finan­cial system.

Mr. Clark said Cana­dian pol­icy mak­ers are faced with a “clas­sic macro-economic dilemma” as they try to deal with quickly ris­ing con­sumer debt lev­els. On the one hand there is a need to keep inter­est rates low to main­tain the eco­nomic recov­ery but it’s those low rates that are caus­ing con­sumers to go out and take on more debt.

Com­ment: Non-mortgage con­sumer debt is a seri­ous issue. Peo­ple are buy­ing too many big screen TVs and what­ever else with too many credit cards. That has got to stop before some­thing bad happens.

Ottawa has been respond­ing by tight­en­ing the rules around mort­gage lend­ing, most recently with the intro­duc­tion of pro­posed new require­ments around under­writ­ing and dis­clo­sure from the Office of the Super­in­ten­dent of Finan­cial Institutions.

Mr. Clark said OSFI’s draft rules would need “some tweaks” to make them “prac­ti­cal and imple­mentable,” but in gen­eral “we are doing the right thing” to make sure the sit­u­a­tion doesn’t get out of control.”

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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