Investors spooked by Canadian banking stocks amid housing slowdown

Investors are being scared off by Canada’s banking stocks as a noticeable slowdown in the national residential property market is pointing towards dim prospects for banks’ future growth, industry observers warned.

The same investors are gravitating towards insurance companies (and higher interest rates) as a more reliable bet—a development that might cut into banks’ revenue streams, which largely rely upon mortgage and loan payments.

“Once Toronto started getting hit I think the housing fears became much more front-of-mind for a lot of people,” Manulife Asset Management equity analyst Ian Scott told Reuters. “I think now when you get a move higher in yields and you are looking for financial exposure in Canada, the incremental dollar seems to be flowing into the [life insurance companies] rather than the Canadian banks.”

Canadian bank shares have struggled despite the BoC’s recent increase in its policy interest rate, a step that might further bog down the real estate sector’s growth.

Banks’ net interest margins “are lagging because of questions over how the changes in the housing market are going to be affecting them,” Portfolio Management Corp. managing director Norman Levine explained.

Toronto home sales have dramatically declined by over 40 per cent year-over-year in July, while prices fell by almost 19 per cent from April. These results came in the wake of the implementation of various measures (including a 15-per-cent foreign home buyers’ tax) intended to moderate the market.

MBN

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