AmericasCanada's housing price surge increasing vulnerabilities -BoC

Julie Gordon
2 minute read

Canada's red-hot housing market has bolstered the economic recovery from the COVID-19 pandemic, but the market imbalances are escalating and driving up already-high household debt, the Bank of Canada said on Friday.

Housing prices in Canada have surged over the last year, with the Bank of Canada becoming increasingly concerned in recent months that gains are being driven by excessive exuberance, investor activity and a fear-of-missing-out.

"Strength in the housing market is contributing to Canada's economic recovery from the pandemic. But it may also be intensifying housing market imbalances and household indebtedness," the Bank of Canada analytical note said.

"The evidence presented here generally suggests these vulnerabilities have increased in recent months."

The report, released Friday morning, shows that since the onset of the pandemic, outstanding household debt has risen by close to 3.5%, reflecting a surge in mortgage debt.

New mortgages to highly-indebted households are also rising sharply, the report shows.

Home price growth, meanwhile, has accelerated and is nearing the last peak in April 2017. The Bank also said some measures show rising exuberance in Toronto's housing market.

Canada's financial regulator said on Thursday it plans to tighten its mortgage stress test amid concerns about surging home prices, and to gird against risks when interest rates rise from record-low levels. read more

The average selling price of a Canadian home jumped 25% in February, hitting a record C$678,091 ($540,096), according to the Canadian Real Estate Association.

Governor Tiff Macklem said late last month that the central bank was seeing signs of household indebtedness worsening as housing prices soared.

($1 = 1.2555 Canadian dollars)

Our Standards: The Thomson Reuters Trust Principles.