In a recent interview, Bank of Canada's Tiff Macklem said he's witnessing "worrying" trends in the country's searing real estate market, most notably families willing to incur increasing levels of debt to keep up with ascending prices.
Canada's central bank had remained mostly tight-lipped regarding the housing market up until the month of February, when Macklem stated it was it demonstrating signs of "excessive exuberance" while the country's average house price rose 25 percent from the previous year.
“Since then, the housing market has continued to run strong across a variety of dimensions; price increases have continued at a pretty high rate, explained Macklem. "If you look at the household indebtedness, you are seeing, on average, the loan-to-value ratios are getting higher, particularly in the uninsured space. That suggests that Canadians are stretching and that is worrying.”
The BoC and Canadian government have been burdened with addressing the country's frenetic housing market, as the Canadian Mortgage and Housing Corporation labeled as increasingly vulnerable to economic crises.
As the housing market continues to rise, a few of Canada's largest banks have started pushing for some semblance of policy response. Earlier this week, Robert Hogue, senior economist at Royal Bank of Canada said the immediate outlook for homebuying is "grim." “Smaller markets are losing some of their affordability advantage, which adds stress to buyers willing to move to a different town to find a home they can afford,” he said.
Bank of Montreal chief economist Robert Kavic, added to the sentiment this week, “policy makers need to act immediately, in some form, to address the home price situation before the market is left exposed to more severe consequences down the road.”
Canada's housing market predicament can mostly be attributed to increasing demand but speculation has also factored in its overheating, explained Macklem.