Bank of Canada Governor Tiff Macklem takes part in a news conference at the Bank of Canada in Ottawa on Tuesday, Dec. 15, 2020. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada Governor Tiff Macklem takes part in a news conference at the Bank of Canada in Ottawa on Tuesday, Dec. 15, 2020. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada warns of rising risks from household debt, and a hot housing market

Many households have taken on large mortgages compared with their income

The Bank of Canada says its concerns are mounting that households are piling on too much debt and posing what the central bank says is a key vulnerability to the economy.

In its latest financial system review, the Bank of Canada said Thursday that many households have taken on large mortgages compared with their income, limiting their flexibility to deal with an unforeseen financial shock like the loss of a job.

The bank notes that total household debt has increased by four per cent since the start of the pandemic, picking up sharply since the middle of last year as the housing market started to heat up.

The Bank of Canada’s report says the boom may help the economy rebound in the short-term, but could lead to a future bust if households have to cut spending because of another downturn in the economy.

The bank’s latest review of the risks to the country’s financial system also highlighted concerns about a too-soon withdrawal of pandemic aid for businesses.

For businesses, the concern is about their future viability when government support ends because much remains uncertain about what post-pandemic life and economic activity will look like, the central bank said.

For banks and insurance companies, the Bank of Canada said cybersecurity remains one of their top three concerns.

But it is housing and high household debt levels that plays a key role in the central bank’s report Thursday.

Government aid and work by the central bank to drive down interest rates during the pandemic have helped put a financial floor on households and businesses, many of whom have fared far better than could have been expected during the economic downturn.

The report adds that the activity in the market and troubling figures on mortgages is reminiscent of 2016 just before stress tests were brought in on mortgage applications to make sure buyers could handle payments if rates went up.

House prices were up 23 per cent nationally relative to one year earlier, the bank said in its report. The Canadian Real Estate Association said this week that the average price of a home sold in Canada in April was just under $696,000.

The bank said the recent surge in prices is more widespread in cities than five years ago when things were largely concentrated in and around Toronto and Vancouver. In the bank’s view, the Greater Toronto Area, Hamilton and Montreal are overheated and Ottawa is on the precipice of joining them.

With house prices rising, and supply of available homes lagging demand, some homeowners may be tempted to buy now out of concern that they won’t be able to afford something in the future.

The bank’s report warns that some households are biting off more than they can chew with a new mortgage, making them more vulnerable to rising interest rates when it comes time to renew their loan.

A federal bank regulator is looking at tightening the test for uninsured mortgages, and the Trudeau Liberals have been pressed to do something similar for insured mortgages.

The federal budget last month proposed a one per cent foreign-buyers tax on vacant property. The central bank said the measure “would likely reduce speculative demand in the housing market.”

On Wednesday, Finance Minister Chrystia Freeland met with a panel of private sector economists. A readout from the meeting provided by Freeland’s office noted that she asked about the housing market and affordability issues.

—Jordan Press, The Canadian Press

RELATED: Canadian economy lost 207,000 jobs in April, unemployment rate rises

RELATED: Small business struggling amid COVID-19 pandemic looks for aid in Liberals’ budget

FinanceHousing

Just Posted

According to Langley’s Larry Worledge, Brydon Park is a hidden gem in downtown Langley City. It offers a short walking trail, and is home to many birds and even turtles, like this on spotted sunbathing on a log in the lagoon. (Special to Langley Advance Times)
SHARE: Sun worshipping in Brydon Lagoon

Send us your photo showing how you view Langley, and it could be featured in a future edition

Aldergrove Business Association member Karen Long shops at the Aldergrove Save-On-Foods in May as part of a shop local challenge. (File photo)
Save-On-Foods annual campaign for Langley food bank starts Thursday

50 per cent of net proceeds from Western Family brand to be donated

Hearts for Hospice fundraiser happens Sunday, June 20, 2021 at Fort Langley Community Hall from 10 a.m. to 3 p.m. (Langley Hospice/Special to Langley Advance Times)
Sunday: Hearts for Hospice fundraiser at Fort Langley Community Hall

Society is hosting event in support of new 15-bed residence project

John Kromhoff with some of the many birthday cards he received from ‘pretty near every place in the world’ after the family of the Langley centenarian let it be known that he wasn’t expecting many cards for his 100th birthday. (Special to Langley Advance Times)
Langley’s John Kromhoff has more than 1,000 birthday cards and letters – so far

An online invitation by his family produced a flood of cards to mark his 100th birthday

People line up to get their COVID-19 vaccine at a vaccination centre, Thursday, June 10, 2021 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Vaccines, low COVID case counts increase Father’s Day hope, but risk is still there

Expert says people will have to do their own risk calculus before popping in on Papa

Stock photo by LEEROY Agency from Pixabay
Drop-in vaccination clinics slated for construction workers in Lower Mainland

Sites in Abbosford, Burnaby and Vancouver holding no-appointment clinics in June and July

Surrey Mayor Doug McCallum speaks at a press conference in August 2019 about provincial government approval of the city’s change to a municipal force, joined by councillors (from left) Mandeep Nagra, Allison Patton and Doug Elford. Members of the National Police Federation claim there is still no transition plan in place although Surrey RCMP’s contract with the city is due to end March 31.(File photo)
Elections BC approves petition application for referendum on Surrey policing transition

Application was filed under Recall and Initiative Act by the widow of a Surrey murder victim

Surrey Mayor Doug McCallum. (Screenshot from Sebastian Sajda YouTube video)
VIDEO: Surrey mayor unceremoniously cuts off 22 speakers during public hearing

Speakers plead with Doug McCallum not to be disconnected but mayor reminds them to stay on topic

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Queen’s counsel Paul Doroshenko, a Vancouver lawyer, has been suspended from practice for two months after admitting that his firm mismanaged $44,353.19 in client trust funds. (Acumen Law)
High-profile B.C. lawyer suspended over $44K in mismanaged client trust funds

Queen’s counsel Paul Doroshenko admits to failing to supervise his staff and find, report the shortage

House Majority Whip James Clyburn, D-S.C., center left, reaches over to Rep. Maxine Waters, D-Calif., joined by Speaker of the House Nancy Pelosi, D-Calif., center, and members of the Congressional Black Caucus as they celebrate the Juneteenth National Independence Day Act that creates a new federal holiday to commemorate June 19, 1865, when Union soldiers brought the news of freedom to enslaved Black people after the Civil War, at the Capitol in Washington, Thursday, June 17, 2021. It’s the first new federal holiday since Martin Luther King Jr. Day was created in 1983. (AP Photo/J. Scott Applewhite)
Biden to sign bill making Juneteenth a federal holiday

New American stat marks the nation’s end of slavery

Ridge Meadows RCMP seized drugs, cash and guns from a house on Lougheed Highway and 221 Street. (Special to The News)
RCMP seize drugs, cash and guns from Maple Ridge house

Items were recovered after search warrant executed on Lougheed Highway home June 11

Athena and Venus, ready to ride. (Zoe Ducklow - Sooke News Mirror)
Goggling double-dog motorcycle sidecar brings smiles to B.C. commuters

Athena and Venus are all teeth and smiles from their Harley-Davidson sidecar

Most Read