Canadian central bank cautions housing risk in Toronto, Vancouver

GMT 01:26 2016 Friday ,10 June

Arab Today, arab today Canadian central bank cautions housing risk in Toronto, Vancouver

Toronto - Xinhua

The Bank of Canada said Thursday that house price increases in real estate markets like Vancouver and Toronto are likely unsustainable at their current pace.

The central bank made the comment in releasing its latest biannual review of risks posed to the Canadian financial system, saying vulnerabilities due to the continued rise of household debt and greater imbalances in regional housing markets are higher than they were six months ago.

"(Housing market) supply will be somewhat more elastic in the long term, and it is unlikely that demand fundamentals will justify continued strong price increases," the bank said.

Bank of Canada governor Stephen Poloz cautioned that prospective homebuyers, and their lenders, should not extrapolate recent price increases into the future when they are weighing whether to buy property.

"If prices are going up because people expect prices to go up, then that, of course, is probably unsustainable," Poloz told reporters in Ottawa. "And so those expectations will not be realized longer term."

"So that raises significant risks ... in the household sector," he added.

The warning came as Canadian federal government faces pressure from researchers, bankers and other housing sector observers in recent days to address mounting household debt and soaring house prices, particularly in Toronto and Vancouver.

The central bank noted that year-over-year price growth in Vancouver reached 30 percent in May, and 15 percent in Toronto.

The bank also said high levels of Canadian household debt pose another threat to the financial system. In areas with rising home prices, low interest rates and readily available credit are pushing up debt to income levels.

Meanwhile Canadian Finance Minister Bill Morneau said the federal government is studying "real evidence" on housing bubble.

The government is conducting an in-depth examination of the country's real estate markets as it decides whether more changes are needed to rein in escalating prices or curb the impact of foreign investment on housing affordability, the finance minister said Wednesday at a global economic summit in Toronto.

"What we're doing right now is we're making sure that we have a deep dive into the information to ensure that any considerations we have for change are evidence-based," said Morneau.

Last week, the Organization for Economic Co-operation and Development released a report calling for more government action to slow surging home price gains in Canada.

Ottawa is also examining whether there is any evidence to support the notion held by some that foreign buyers are driving up home prices, Morneau said.

"We're going to remain focused on this, using real evidence to think about what are the measures that we can do in order to ensure that this market stays healthy for Canadians," Morneau said.

Some Canadian economists hold that rapid population and employment growth in Toronto and Vancouver, lack of developable space and low mortgage rates are the driving forces behind the skyrocketing house prices in both metropolises

source : xinhua 

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