CANADA’S HOUSING MARKET AT HIGHER RISK OF CORRECTION, SAYS BANK OF CANADA
An influx of investors into Canada’s housing market has likely helped fuel extrapolative expectations on price gains and that could expose the market to a higher chance of correction, a deputy governor of the Bank of Canada said on Tuesday.
Paul Beaudry, in a virtual speech to a provincial regulator, also said Canada’s main financial system vulnerabilities – housing market imbalances and high levels of household debt – had been intensified by the pandemic.
Beaudry noted that “somewhat slower” house price growth over the summer should lower the chances of undesirable extrapolative price dynamics, but said markets such as Montreal and Hamilton, Ontario were still showing signs of exuberance.
He made clear that Canada’s financial system was sound, but said a drop in housing prices could affect household spending and that could impact employment.
Canada’s housing prices skyrocketed through early 2021, surging to a peak in March before slipping over the summer months. They have again picked up steam, nearing that record in October, according to realtor data.
At the same time, the Bank has seen an increase of riskier high loan-to-income ratio mortgages, leaving people more vulnerable to rising interest rates.
“Vulnerabilities linked to elevated household debt appear to be rising again after a slight pause,” said Beaudry.
The Bank of Canada last month signaled that it could start hiking interest rates as soon as April 2022. Beaudry said the longer-term structural forces that have driven global interest rates down could partially reverse in the coming years.
Story by: Financial Post