Are Canadian bank investors worried about the housing market?

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Jonathan Ratner

The downturn in Toronto’s housing market appears to be drawing to a close, and if the performance of Canadian bank stocks is any indication, investors seem to agree.

Despite persistent fears that the domestic housing market was in a dangerous bubble bound to burst in a disruptive fashion, data from the Toronto Real Estate Board suggests otherwise. While resales in August remained on the downtrend relative to a year ago (falling 34.8 per cent), the annual decline was the smallest in three months.

“Those worried about a collapse in Toronto’s housing market can breathe a little easier now,” said Robert Hogue, senior economist at Royal Bank of Canada.

A declining housing market, coupled with rising interest rates, was expected to put pressure on heavily-leveraged Canadians, and therefore the lucrative lending businesses of the country’s biggest banks.

Dramatic home price gains in Toronto and Vancouver have been of particular concern in recent years.

In May, Moody’s downgraded all of Canada’s big six banks, with the rating agency pointing to soaring household debt and elevated housing prices.

Continue to read on.Financial Post