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ARE CANADIAN BANKS SET TO FAIL AGAIN

September 5, 2017

Have the banks now put themselves back into a pickle? It would appear that they may have and there are, of course, many very complex reasons why.

In 2008/9 Canadian banks were in financial trouble and in need of an injection of over $114,000,000,000.00 of funds from the Federal Government – mostly from CMHC buying up risky mortgage loans.

The central bank acknowledges that Canada’s economy has had an overreliance on the production of “dirty oil” from the Alberta tar sands.  But now that cheaper oil is once again available the tar sands are less viable and banks are already starting to feel the pinch.

That coupled with poor and apparently overzealous lending practices may cause a repeat of the 2008/9 financial crunch.

The central bank has said that Canada’s housing market is over-valued by at least 30% and some other reports have suggested as much as 60%.

That means that the average Canadian house price of $420,000.00 should be adjusted, for lending purposes, to $294,000.00.  Additionally since banks can only mortgage to 80% of loan to valued which means that, for the average Canadian $420,000.00 purchase, banks should only be putting up a maximum of $235,200.00 mortgage money.

If the banks were acting in response to the information they have available, could consumers afford to buy houses even at low interest rates?