The Globe and Mail reports in its Friday edition that the Bank of Canada ranks household indebtedness and accelerating home prices among the biggest threats to the economy in the medium term.
The Globe's Rachelle Younglai and Mark Rendell write that the BOC itself has played a role in stoking demand for real estate by holding interest rates at record lows over the past year, and promising not to raise them for some time.
BOC Governor Tiff Macklem warns that household vulnerabilities have intensified with the quality of borrowing deteriorating and speculative buying increasing. Despite the increased risks in the housing market, the BOC says systemic risks to the financial sector remain low. Canada's banks are well-capitalized and performed well throughout the pandemic. The BOC sys a misalignment of house prices and fundamentals could lead to home prices dropping in the future, which could make it difficult for homeowners to make mortgage payments or leave homeowners owing more than their house is worth.
TD economist Ksenia Bushmeneva says Mr. Macklem is right to flag the risk of high household indebtedness, "but I think the [BOC] has limited scope to play a larger role in cooling the housing market."
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