Stephen Poloz, the former Bank of Canada governor, says he's "not really" concerned about Canada's current housing markets. Sales and prices have been increasing in Canada's largest cities, but have still not deterred his outlook.
Poloz explained this to BNN Bloomberg's Amanda Lang earlier today, pointing to a "K shaped' economic recovery that is currently taking place during the COVID-19 pandemic. The top part of the K has recovered well. Basically, that pertains to around 95 per cent or a little more of the economy,” stated Poloz.
“The bottom part, where the damage is the greatest, it’s about five per cent or less of the economy,” he added. Industries such as retail, hospitality, and the airline sector that have suffered the most.
He noted that while there's a possibilty of long-term unemployment in the in the aformentioned sectors, the remaining 95 percent, or the upper-half of the K will dictate how the economy will react.
“And with interest rates at generational lows, you are bound to see a certain amount of heat in the housing market,” Poloz said. “We have months of pent-up demand coming through there, and of course we’re seeing the results of that combined with low interest rates now.”
Poloz’s assessment comes no longer than a week after Tiff Macklem, the Bank of Canada’s current governor, said the central bank is closely monitoring the housing market amid the historically low rate landscape.
“We will also watch for signs that housing markets are being driven higher by speculation that prices will keep rising,” announced Macklem in a speech last week. We will watch whether people buying houses are taking on outsized debt relative to their income.
Poloz noted that even though Canadians are experiencing the effects of an economic slide, income has been sustained through government programs. “We’re supporting income so that it’s not like people are doing it on a wing and a prayer,” said Poloz.
“The real question is: is this sustainable on the debt side? And I’ve always argued it probably was. Of course, that doesn’t mean that the prudential policies shouldn’t be continued.”