Canada’s real estate market could be more resilient than people think, says the chief financial officer of the country’s biggest bank.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

RBC doesn’t see Canada's housing markets going into 'free fall' Back to video

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

Play Video

Royal Bank of Canada’s Nadine Ahn described the bank’s mortgage book as healthy even as home prices buckle under the weight of higher interest rates and a possible recession. High immigration levels driving demand amid a supply crunch means the country will still be grappling with an imbalance.

“We’re actually in a situation where we don’t think the housing market is going to go into free fall because there is that tension around supply demand,” Ahn said during the RBC Capital Markets Financial Institutions Conference in New York on March 8. “And those of us who live in Toronto, we just found out house prices actually went up last month.”

Benchmark home prices in the Greater Toronto Area declined more than 17 per cent year over year in February, but the market managed its first month-over-month gain in nearly a year. After the Bank of Canada’s aggressive rate-hiking cycle last year, major housing markets such as Toronto and Vancouver suffered double-digit declines from their pandemic peaks.

The correction has yet to hit RBC’s bottom line. Ahn described a healthy $355-billion mortgage portfolio, two-thirds of which are fixed-rate mortgages. She also hasn’t seen clients rotate into fixed-rate mortgages, adding that some are looking to speed up their amortization to bring down overall interest costs.

Ahn said around 20 per cent of the bank’s variable-rate mortgages are about to hit a trigger rate, or the point where borrowers are only paying interest. She added that many of these payments will reset on maturity in 2025 and 2026.

“When you look at it from what that means from a client-payment standpoint, you’re seeing about maybe a $400, on average, increase in payments, maybe a 30 per cent increase overall,” she said, adding that clients’ cash flow is expected to be manageable, especially when wage inflation is taken into account.

Ahn pointed to other economic bright spots that have so far stood between Canada and a recession, most notably the surprisingly resilient labour market. The economy gained an estimate-busting 150,000 jobs in January and the unemployment rate stayed at five per cent.

Still, she acknowledged there are risks in the mortgage book that RBC will have to navigate. Clients who are about to hit a trigger rate over the next two or three years with a high loan-to-value figure and a low credit score present a higher risk, she said, though they only make up a low percentage of the total portfolio.

“You do focus on that and you do work through with the clients to make sure that they’re going to be ready to be able to manage that cash flow,” Ahn said.

• Email: shughes@postmedia.com | Twitter: StephHughes95