The Globe and Mail reports in its Wednesday, Oct. 5, edition that higher mortgage rates are weighing on the Canadian housing market and raising questions about the big banks' exposure to potential credit losses. The Globe's David Berman writes that an analysis from CIBC World Markets, however, concludes that the impact on bank profits should be relatively light. CIBC analyst Paul Holden says, "Even if we assume conditions worse than anything experienced in Canada to date, we don't expect the earnings-per-share impact to be all that significant." Though bank stocks have rebounded this week, they are down nearly 19 per cent, on average, since early February.
The downturn has occurred as central banks in Canada, the United States, Britain, the Eurozone and elsewhere have raised their key interest rates in response to surging inflation.
The dramatic shift in monetary policy has raised mortgage rates to multiyear highs and triggered concerns about the ability of households to meet their debt obligations. Mr. Holden, however, expects that the damage from the housing market will be contained. Mr. Holden doubts a housing market downturn will seriously impact bank profits.
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