Mortgages in the largest markets are overvalued – Fitch Ratings

Homeowners in Vancouver and Toronto have been particularly burdened by the coronavirus crisis

Mortgages in the largest markets are overvalued – Fitch Ratings

Despite the near-omnipresent influence of the COVID-19 pandemic, Fitch Ratings said that residential mortgages in Vancouver and Toronto are currently overvalued by 22% and 31%, respectively.

In the latest edition of its “Canada Residential Mortgage Rating Criteria” report, Fitch said that the estimates were reached by taking into account the benchmark prices in both markets, as well as their long-term price-to-income ratios and average income levels.

The economic ravages of the global outbreak have pushed household incomes to the brink. Fitch said that currently, the most important drivers of risk in Canadian residential mortgages are sustainable loan-to-value ratios and “other borrower and loan attributes including credit score, total debt service ratio, loan purpose, occupancy, and property type.”

A recent survey by Forum Research has found that 76% of Canadians will not be able to pay at least one mortgage instalment before the crisis ends. Another 46% said that they were not able to benefit from deferrals and other similar kinds of assistance from their lenders.

And it’s not just home owners who have been burdened by the coronavirus: The fiscal pain is more pronounced among landlords already bearing significant debt loads, according to Stephen Brown of Capital Economics.

“You have investors who were sitting on a portfolio of maybe five to 10 rental properties, and had been renting them all out on the short-term rental market,” Brown said late last month.