TORONTO - New data showing a slowdown in Canada’s hot housing market was largely expected and a market correction will not have a significant impact on the Canadian economy or on its big banks, the head of Bank of Nova Scotia said on Tuesday.
As Canadian homeowners and economists watch and worry about the risk of a U.S.-style housing crash, Scotiabank Chief Executive Rick Waugh said he believes the country’s mortgage lenders and its economy will withstand a drop in both prices and sales.
“There can be some hardships, but because the Canadian economy is so well diversified - we have a strong national balance sheet, we have a strong income statement for our country, and our banks are the same ... (so) that while we have to be concerned - we should be - it is nothing like what has happened in other jurisdictions,” Waugh told reporters.
“I can say for our bank that even numbers that are greater than you are seeing, the economic effects to us and therefore to our customers are not significant, and what we see now is probably at worst a soft landing.”
Data released on Monday showed existing home sales in Canada suffered their biggest month-over-month decline in more than two years in August, a sign that recent government mortgage rule changes may be hastening an end to the country’s post-recession property boom.
The Canadian Real Estate Association (CREA) figures prompted the industry group to cut its sales and price forecasts for this year and next. CREA now forecasts sales will rise just 1.9% this year and then decline 1.9% in 2013.
Many economists have forecast a price correction of between 10% and 15%, while more bearish experts see a 25% drop in prices, similar to what happened in the 2009 U.S. housing collapse.
But Waugh, the head of Canada’s third-largest bank, said all indications so far point to a fairly modest correction that will not significantly affect lenders, which lose money when homeowners stop paying their mortgages.
“The numbers we’re seeing are really not a huge surprise. They are well within our expectations of, say, 10% (declines) in sales volume and 10% in prices,” Waugh told reporters following a speech on risk management in Toronto.
He told a business audience that the mistakes of a few big global banks have hurt public trust in financial institutions, and it will take continued work by both political leaders and banks to restore confidence in the system.