BofC Housing Debt Concerns
CBJ — The Bank of Canada is sending out a sobering warning that rising consumer debt in Canada and an increasingly unbalanced housing market have notably increased household vulnerabilities in the last six months but says that the nation’s financial system remains resilient.
Pointing to Canada’s two largest housing markets, Toronto and Vancouver, where prices have more than doubled in recent years, the bank said there is an “increased likelihood of a price correction that could lead to financial stress.”
In its semi-annual Financial System Review, the central bank said household indebtedness and housing market imbalances, the most important vulnerabilities for the Canadian financial system, have increased since December 2016.
“Given recent events, some people might naturally wonder if there is a connection between the two vulnerabilities we’ve described and the situation at Home Capital,” Bank of Canada Governor Stephen Poloz said. “While we don’t generally discuss individual financial institutions, I can say our assessment is that the situation reflected firm-specific factors. The regulatory and supervisory system worked as it is designed to do, and we are not seeing signs of broader stress. Indeed, those recent events were a pretty clear indication of the resilience of Canada’s financial system as a whole.”
While new housing policy measures should help mitigate the vulnerabilities over time, the share of uninsured mortgages is growing and some mortgages are showing riskier characteristics.