As Khane.com reports according to BBC, MOODY’S credit ratings agency made pessimistic assumptions about the health of the housing market and has concluded that the largest lenders in Canada can bear a reduction more than 25% in the housing market without their business suffer of catastrophic losses. MOODY’S credit ratings agency has concluded this by investigating the fate of American lenders during US housing market collapsing in 2007 and comparing this statistics with Canada’s condition.
MOODY’S credit ratings agency believes that the worst scenario for housing market in Canada is decreasing by 25% in housing average prices. According to the Canadian Real Estate Syndicate statistics, the average of housing prices decreasing was more than 500 thousand Dollars last month. MOODY’S credit ratings agency predicts that decreasing the housing prices will more decrease in two booming market of Toronto and Vancouver and will drop to 35%. If this happens, the large banks of Canada will suffer about 11.7 billion Dollars.
MOODY’S credit ratings agency believes that with a loss at this level “most banks can compensate this loss by earnings of a season”. Although a loss more than 20 billion Dollars is impressive for six large banks, but the banks of Canada are equipped to limit the damages caused by the housing market recession. Because most mortgages in Canada has been insured by “Canada Mortgage and Housing Corporation” that is a state-owned corporation and this means that if the housing market is in trouble, the banks do not suffer much loss. At the time of US’s housing crisis, the mortgages were not insured. MOODY’S credit ratings agency predicts in the event of a recession in the housing market, the Canada Mortgage and Housing Corporation will suffer about 6 billion Dollars. Although this figure is a big figure, but it is tolerable and compensable.