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S&P is projecting a mid-single-digit decline in average Canadian house prices in the near term.

Rafal Gerszak/rafal gerszak The Globe and Mail

Standard & Poor's has changed its outlook on Genworth Financial Mortgage Insurance Co., the country's largest private-sector mortgage insurer, from positive to stable, amid worries about Canadian consumer debt loads and housing prices.

The move may be welcome to real estate bears such as Ben Rabidoux, an analyst and strategist with M Hanson Advisors, who say that some clients have begun to short Genworth's shares as one way to bet on the possibility of a large decline in home prices.

But S&P affirmed its counterparty credit and financial strength ratings for Genworth when it made the move Tuesday, and said that it expects the company will keep its current rating as long as there are no major shocks.

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The rating agency said that its decision to revise the outlook down to stable stemmed from macroeconomic considerations. With personal income growth slowing, high consumer indebtedness, and slack labour demand, Canadian borrowers in general are more susceptible to weakness in the economy or increase in interest rates, it said.

At the same time, GDP is settling into a slower growth pattern and unemployment remains above pre-recession lows, it added.

S&P is projecting a mid-single-digit decline in average Canadian house prices in the near term.

It expects that there will be a contraction in the insured mortgage segment, which might affect Genworth Canada's business growth. But it adds that better market penetration by the company could offset the decline.

Ottawa has recently decided to maintain a $600-billion cap on the amount of mortgage insurance that Genworth's larger rival, Canada Mortgage and Housing Corp., can have outstanding. That is forcing the Crown corporation to curtail its own growth, giving Genworth a new opportunity to expand.

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