Canada Housing Market Still A Concern, While Risks To Financial Systems Lessen: BoC

The Bank of Canada is again flagging Canada's overheated housing market and sky-high household debt as the biggest domestic threats to the economy

The Bank of Canada is again flagging Canada's overheated housing market and sky-high household debt as the biggest domestic threats to the economy, while at the same time judging overall risk to financial markets has lessened.

The continued emphasis on debt and housing, despite what the central bank's governing council concedes is improving levels of risk, adds credence to the view that governor Stephen Poloz appears set to keep interest rates unchanged until 2015.

In its semi-annual review issued Tuesday, the bank said overall risks to Canada's financial system have improved, mostly as a result of a sounder economic and national debt situation in Europe, which has been a key threat since the 2008-09 recession.

It was the first downgrade of its ranking of risk from "high" to "elevated" in two years, with "very high" being the central bank's worst possible rating.

"First, and most importantly, the euro area has continued to stabilize. As a result, the likelihood of a euro-area financial crisis has diminished," the bank said in giving its reasons for the better outlook.
"Second, long-term interest rates in most advanced economies have increased, helping to improve the financial position of institutional investors with long-duration liabilities, such as pension funds and life insurers," the report said.

But the bank continued to devote a large section of the report to the continuing threat from housing, and near-record levels of household debt which has stubbornly remained about 160 per cent of disposable annual income, despite a slowdown in overall credit.
In particular, it notes that while the recent spurt in home sales and accompanying increase in prices are likely a temporary phenomenon, homes in Canada remain overvalued and households vulnerable to a crisis, or a sharp rise in interest rates.

The bank says it is particularly worried about the Toronto condominium market, which it assesses to have an oversupply of unsold units and elevated levels of unsold units under construction.

"If the upcoming supply of units is not absorbed by demand as units are completed over the next few years, there is a risk of a correction in prices and construction activity," the bank warns.

While Poloz has said recently that the most likely scenario is that housing will slow in an orderly fashion to a "soft landing," the report cautions that regulators must continue to carefully monitor developments.

Still, the report does take note of encouraging signs.

Consumer credit growth has slowed to the lowest pace in 20 years, and new loans have gone to borrowers with sounder credit scores. It says it expects household debt levels to stabilize at current levels and then start coming down.

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REAL ESTATE SNATCH is the independent real estate blog of Samir Safadi, Sales Representative of West-100 Metro View Realty Ltd, brokerage it is dedicated to covering Real Estate News, digital culture, social media and technology, providing analysis of trends, Market Data , reviewing new development. Offering Real Estate services resources and guides. Services are provided to prospective buyers and sellers of real estate by Samir Safadi, Sales Representative, West-100 Metro View Realty Ltd, brokerage, duly registered in the province of Ontario, under Real Estate and Business Brokers Act, 2002 (REBBA 2002) and Member in good standing with



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