The Bank of Canada says it sees "worrying" signs that some Canadians are taking on too much debt to buy into the overheated housing market.
Bank of Canada Governor Tiff Macklem said in a media interview that there is evidence that current loan levels relative to home values are growing, an indication that some borrowers could be overextended.
He also warned that Canadians have begun to make purchases based on the belief prices will continue rising, which is a sign of speculation in the market.
"Canadians are stretching and that is worrying," Macklem said. "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.”
Despite the warning, Governor Macklem reinforced that the central bank plans to keep interest rates at historic lows in order to help the economy recover from the COVID-19 pandemic.
Macklem’s comments come amid increasingly urgent calls from economists for policy makers to cool the housing market. Bank of Montreal (TSX:BMO) and Royal Bank of Canada (TSX:RY) have each issued reports warning officials that they need to take steps to break the psychology of expecting continued gains in real estate.
Last week, Canada Mortgage and Housing Corp. (CMHC), the country’s national housing agency, added three more cities to its list of markets highly vulnerable to a sharp price drop, including Toronto. CMHC said the recent broad-based price appreciation means that overheating risks are rising.
The federal government in Ottawa plans to introduce a tax on foreign non-resident homeowners this year.
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