Canadian Lenders Shift to U.S. as Recession Fears Rise

Lenders in Canada are shifting their attention to the United States, as fears of a recession begin to mount. The country’s gross domestic product (GDP) grew by just 0.1% in the fourth-quarter of 2018 and had an annualized rate of 0.4%.

Commercial mortgage brokers and investors fear that the 0.1% GDP could easily fall into contraction territory.

The Bank of Canada warns that the probability of a severe recession has increased slightly over the past year. Global uncertainty continues to be a driving factor, as the U.S. and China continue on with trade wars. The Central Bank does not believe that Canada will fall into a recession, indicated by two quarters of GDP contraction. The Bank is forecasting that the economy will grow at a rate of 1.2% in 2019 and 2.1% in 2020. GDP growth in 2019 is low enough that it can quickly fall into contraction territory.

Bank executives claim that while risks of a recession do exist, there needs to be a trigger that will put the country into a recession.

The fear of recession has led more than one Toronto commercial mortgage broker to turn towards the US market. Lenders are shifting to the U.S., as fear of recession in the U.S. is lower. A larger market size allows many lenders to seek more opportunities with high returns compared to Canada’s smaller, very competitive market.

Trez Capital, a Vancouver-based lender, has shifted half of its capital to the US. The lender has C$3.5 billion in capital and has doubled its exposure to the US market since 2015. Big banks have more stringent lending requirements and have pulled back on lending. Regulated non-banks have tried to fill the void.

Underwriting policies at many lenders have also tightened to help hedge against a falling economy.

The U.S. also has higher job growth with higher levels of liquidity. Toronto’s opportunities remain a bright spot for Canada. The city is thriving on the back of startups that have flocked to the city to enjoy a robust startup culture. Google is also planning to create a smart city in Toronto that is slated to be complete in late 2023 or early 2024, pending government approval of the plans.

Google will move their Canadian headquarters to the city once it is complete, further helping advance Toronto’s economy.

Toronto has seen a massive influx of immigrants, too. The city has almost 100,000 new immigrants migrating to the city through July, which has boosted construction demand.

Melissa Thompson
Melissa Thompson writes about a wide range of topics, revealing interesting things we didn't know before. She is a freelance USA Today producer, and a Technorati contributor.