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

A lift on marine border restrictions by next summer would bring an economic gain to Greater Victoria through the cruise industry. (Black Press Media file photo)
Saanich calls for opening of marine borders by summer 2022

Council to ask feds to end restrictions in time to allow planning for next cruise ship season

Camper the dog was found Wednesday night by someone walking their own dog along Hollywood Crescent. She had gone missing after a violent attack on June 11. (Courtesy of VicPD)
Camper the dog found safe after fleeing violent van attack in Victoria

Camper was found on Hollywood Crescent Wednesday night

In January 2019, Grade 5 students from Glenlyon Norfolk School, accompanied by Grade 11 student Anastasia Castro, gave a presentation to Oak Bay council seeking a ban on plastic bags in the district. (Black Press Media file photo)
Oak Bay set to survey businesses on single-use plastic products

Survey gathers information ahead of expected legislation on provincial, federal level

Al Kowalko drives Sooke School District’s first electric bus that began operation in May. The board decided on June 15 that all future buses will be electric, asking the province for more funding to support the program. (Zoe Ducklow/News Staff)
Sooke school board agrees to make all future buses electric

Board to ask province to increase funding to cover the extra up front cost

Brian Korzenowski rides with Athena, left, and Venus who are safely strapped in and goggled up with the wind in their fur. (Zoe Ducklow - Sooke News Mirror)
Double-dog motorcycle sidecar brings smiles to Sooke Road commuters

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

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

(Black Press Media file photo)
POLL: When was the last time you visited the mainland?

The films are again lighting the screens at local theatres, the wine… Continue reading

Anyone with information on any of these individuals is asked to call 1-800-222-TIPS (8477) or visit the website victoriacrimestoppers.ca for more information.
Greater Victoria Crime Stoppers wanted list for the week of June 15

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

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

Kimberly Bussiere and other laid-off employees of Casino Nanaimo have launched a class-action lawsuit against the Great Canadian Gaming Corporation. (Chris Bush/News Bulletin)
B.C. casino workers laid off during pandemic launch class-action lawsuit

Notice of civil claim filed in Supreme Court of B.C. in Nanaimo against Great Canadian Gaming

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)
Cards from all over the world flood in for B.C. man’s 100th birthday

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

Most Read