Ever since the Office of the Superintendent of Financial Institutions began supervising the Canada Mortgage and Housing Corp. last spring, we have seen a tightening of credit in the housing sector in Canada. Through the fourth quarter and into January, there have been signs that this tightening is starting to impact real activity, with listings up and sales down, pushing inventory to highs not seen since August 2009. While completions are still on the rise, housing starts and permits fell dramatically in January, foreshadowing a slowdown in construction, labour activity and real economic growth:
Source: M Hanson Advisors
In the long term, we believe the Canadian bank business model is sound; however, with the tailwind of housing becoming a headwind, we are finding better risk-reward opportunities elsewhere.