Big banks warn on housing market

The robust Canadian housing sector, especially the booming condo markets in Vancouver and Toronto, could be at risk in 2012, say the heads of some of Canada's biggest banks.   

Gordon Nixon, president and CEO at Royal Bank told a banking conference Tuesday the Canadian housing market could be headed for a slowdown, led by Vancouver and Toronto.   

"When you look at markets like Vancouver and Toronto there is a level of caution from a risk perspective that is higher today than it would have been a couple of years ago," he said.   

"When you look at the condo side there is probably vulnerability … it is the area which is most vulnerable with respect to Canadian housing."   

'At the condo side there is probably vulnerability ' —Royal Bank CEO GOrd Nixon

Bank of Montreal president CEO Bill Downe also said there is a risk of a downturn in the housing market and the best hope is for a soft landing.   

"There is no question that the warning signs around the Canadian housing market have been visible for more than a year,"he said, pointing out Toronto and Vancouver.   

He said investor owned properties are a cause for concern because there is a build up of supply based on investors expecting there will always be demand.   

"I think the hope — and I think it's a realistic hope of the Canadian housing market plateauing and the system absorbing the excess supply that has been built up in those two cities can be worked off."   

Cooling starts

Their remarks came as data showed that housing starts rose more than expected in November to more than 200,200 units — with condos in Toronto and the Atlantic region leading the way.   

The influx of multi-unit builds has led some economists to warn of overbuilding in the Canadian housing market, which could leave a glut of unsold homes on the market in the case of a downturn.   

A downturn in demand would also likely lead to an easing of Canadian home prices, which The Economist magazine recently declared are about 25 per cent overvalued.   

Interest rates are not expected to increase in the coming year, but analysts noted that Canadian households are already at record high debt levels, and the growth of both jobs and income has stalled.   

However, while the risk of a downturn is higher now than a few years ago, there are significant differences in Canada's market that would prevent a U.S.-style collapse, Nixon said.   

A housing bubble in the U.S. caused in part by years of easy credit crashed during the recession and has yet to recover.