Canadian Mortgage Growth to Slow as Much as Half in 2 Years: RBC

Mortgage loan growth will slow to about 2 percent to 4 percent in the next two years from 5.4 percent as home sales and prices cool, RBC Capital Markets said today in a note.

Loan growth reached a recent peak of 13 percent in May 2008, according to Geoffrey Kwan and Sean Adamick, analysts at the Royal Bank of Canada unit. Mortgage loan losses will remain low partly due to employment growth, they said.

Growth rates over the next two years will be similar to the 1990s housing downturn, the analysts said.

Canada’s banks hold a 65 percent to 70 percent market share of the C$1.2 trillion ($1.17 trillion) residential mortgage market, RBC said. Almost 65 percent of the mortgage debt is insured, through the government’s Canada Mortgage and Housing Corp., Genworth MI Canada Inc. (MIC) and Canada Guaranty Mortgage Insurance Co.

Mortgage lenders and insurers that RBC covers have no more than 8 percent of total loans exposed to the country’s condo market, RBC said. Toronto-Dominion Bank (TD) has the most for mortgage loans of condo borrowers and developers, at C$32 billion, followed by Canadian Imperial Bank of Commerce at C$18 billion, the analysts said. Royal Bank and Bank of Nova Scotia each have C$15 billion.

“We recognize there remain significant risks to the condo market and the Toronto condo market in particular, given the amount of activity currently and in recent years,” the analysts wrote.

Condo sales in Toronto are slowing, unsold inventory continues to rise and there are potentially almost 30,000 units a year that could be completed in 2013 and 2014, they said.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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