In one fell swoop the credit rating agency Moody’s brought down the credit rating of six Canadian banks.
RBC was the only big bank to escape this downgrade cycle.
So why is Moody’s picking on us?
“High levels of consumer indebtedness and elevated housing prices leave Canadian banks more vulnerable than in the past to downside risks the Canadian economy faces,” David Beattie, vice-president at Moody’s said in a note.
Canadian consumer debt has risen to a record-high 165 per cent of disposable income in the third quarter of 2012, up from 137 per cent in mid-2007. Bank of Canada governor Mark Carney has repeatedly warned about these levels, but they remain stubbornly high.
Sure, Mark Carney has warned about this, but he’s gone now… doesn’t that mean the problem is gone too?
As always Mr. Flaherty is there to reassure us Canadas banks are the ‘soundest in the world’.
In other news… it’s not a bubble, it’s a balloon.
Image source: wreckonomics at Vancouver Peak.
So we’ve gotten to the point where it’s pretty unanimously agreed that real estate in Toronto and Vancouver is over-valued and due for a correction.
The question now is what sort of an end to this housing boom we will be looking at.
Will this be an explosive toppling of values, a market that runs head first into a wall, or will it be a simple slow leak for years and years?
..And which would be better?
You can add David Rosenberg to the list of people that say ‘whimper, not bang‘.
His latest comments fall into the ‘not a bubble, a balloon’ camp:
“Prices are starting to deflate by 0.8% YoY, though more like air coming out a balloon slowly than a giant pop,” wrote Rosenberg Tuesday in his morning note.
“It is gradually becoming a buyer’s market with the inventory of unsold homes rising to six month’s supply, which is at the edge of a balanced market.”
Of course most of that drop nationally is being driven by Vancouver where everything is falling fastest. What remains to be seen is whether the current drop will remain even or accelerate.