- The value of housing-related debt in Canada has nearly tripled over the past decade to $1.3 trillion.
- This debt is also the single largest exposure for Canadian financial institutions, with real estate loans making up more than 40 per cent of the assets of Canadian banks, up from about 30 per cent a decade ago.
- The average level of house prices nationally now stands at nearly four-and-a-half times average household disposable income. This compares with an average ratio of three-and-a-half over the past quarter-century.
- Specifically, our analysis of bank distress during the credit and liquidity crisis of 2007 to 2009 suggests that the tangible common equity to risk-weighted assets ratio (or TCE to RWA) was the strongest predictor of future bank distress (with a Gini coefficient of 0.42) of the commonly measured capital ratios, and appears to be a significantly better predictor than other traditional risk-based measures of capital, including Tier 1 capital to RWA (Gini coefficient of 0.27) and Tier 1 capital plus Tier 2 capital to RWA (Gini coefficient of 0.26).
- Canadian banks have some of the worse TCE ratios in the world (i.e.: they are extremely over leveraged), even worse than many of Europe's sick banks.
- Governor Carney noted in his speech that more than 40% of bank assets are in mortgages.
- If I'm right, Canadian real estate prices will likely drop around 30% on average across all markets. These losses will show up on the balance sheets of the banks.
(Note: I still maintain Vancouver will decline in excess of 70% - Whisperer)
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