The Bank of Canada maintained its overnight rate at 1 per cent October 22, but issued a what could be seen as a warning over the possibility of a severe housing market correction, highlighting activity in cities in British Columbia, Ontario and Alberta.
In its October 2014 Monetary Policy Report, the central bank said, “In general, with historically low price increases and sales volumes, markets in Eastern Canada appear to show signs consistent with a soft landing. This contrasts with major cities in Ontario, Alberta and British Columbia, where housing markets are generally robust and much tighter.”
It went on to say, “While a soft landing in the housing market remains the most likely scenario, near-record-high house prices and debt levels relative to income leave households vulnerable to adverse shocks. Continued strength in housing and consumption would provide a near-term boost to economic activity, but would also further exacerbate existing imbalances in the household sector and increase the likelihood and potential severity of a correction later on.”
The bank generally looked favourably on the housing market across Canada, however, noting that “Housing activity has been more robust than anticipated, buoyed by continued very low mortgage rates and exhibiting strength beyond a rebound from weather-depressed levels earlier in the year.”
It added, “Housing starts have remained broadly in line with demographic demand in recent months.
“However, sales of existing homes have picked up noticeable since the beginning of the year, to a four-year high … This is contributing to sizable increases in house prices, although the national picture continues to mask important regional divergences.”
To read the full report, click here.
