The Bank of Canada is sounding the alarm over the country’s housing market, which continues to heat up amid constrained supply and surging prices.
In an interview with the Financial Post, BoC governor Tiff Macklem said that there are worrying signs that some homebuyers are taking on too much debt relative to home values. “Canadians are stretching and that is worrying,” Macklem said. He also warned that some individuals are making property purchases under the assumption that prices will continue increasing. “If Canadians are basing their decisions on the kinds of price increases that we’ve seen recently are going to continue indefinitely, that would be a mistake. They’re not sustainable,” he explained.
At the same time, however, the governor noted that there is very little the central bank can do to deter some of the rising market activity, especially since interest rates are expected to remain low in support of the economic recovery.
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Macklem’s latest comments echo an increasing number of calls among economists and analysts for policy makers to intervene in Canada’s hot housing market. In just the past week alone, economists at both the Royal Bank of Canada and the Bank of Montreal have urged officials to take necessary steps to break the notion that real estate gains will continue rising.
Another main reason contributing to the surge in home prices is the continued lack of supply. In an effort to free up more housing for Canadians, Prime Minister Justin Trudeau has revealed the federal government will introduce a tax on foreign non-resident home owners.
Information for this briefing was found via the Financial Post, Bloomberg, and Nanos Research. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
