Bank of Canada says house prices have increased debt, but risks well managed

Rising home prices have increased household debt levels, but steps taken by regulators to tighten mortgage lending rules have helped manage the associated risks, according to the Bank of Canada.

OTTAWA — Rising home prices have increased household debt levels, but steps taken by regulators to tighten mortgage lending rules have helped manage the associated risks, according to the Bank of Canada.

In a speech in Kingston, Ont., deputy governor Lawrence Schembri said Tuesday demographic forces as well as lower interest rates in the wake of the financial crisis have helped drive house prices.

“The resulting strength in the housing market has increased household imbalances, but the risks stemming from these vulnerabilities have been well managed by complementary macroprudential policies,” he said.

The government has moved several times in recent years to tighten mortgage lending rules, including reducing the maximum amortization period for insured mortgages from 40 years to 25 years as well as changing the qualifying rules.

“Recent evidence suggests that these measures have resulted in higher average credit scores, which have improved the quality of mortgage borrowing,” Schembri told the Canadian Association for Business Economics.

He added that the trend rate of growth in mortgage credit is below where it was before the financial crisis.

Home prices have been rising at faster rates than income in Canada and other comparable countries for about 20 years. The increase has been driven by demographics as well as lower interest rates and changes in mortgage financing. Constraints on supply, especially in urban areas, have also played a role.

“In Vancouver, bounded on three sides by water with coastal mountains as a backdrop, condo development has dominated housing starts since the early 1990s,” Schembri said.

“We are now seeing a similar shift to condos in Montreal and Toronto.”

The central bank cut its key interest rate by a quarter of a percentage point to 0.5 per cent in July in a bid to boost the economy, hit hard by the plunge in oil prices. The move pushed down variable rate mortgages tied to the prime rate offered by the big banks.

The Bank of Canada said in its monetary policy report at the time it expected a “constructive evolution in the housing market, with housing activity expected to moderate over 2015 before stabilizing through 2016 and 2017.”

In the central bank’s financial system review in June, it said the steep drop in oil prices left Canada vulnerable to any significant event that would lead to widespread job losses and falling incomes.

It also noted Canada’s country’s climbing level of household debt and overvalued real estate market as key vulnerabilities.

Canada Mortgage and Housing Corp. said Monday it insured $534 billion worth of mortgages in the second quarter, down $9 billion from the end of last year.

Its overall arrears rate was 0.34 per cent at June 30, while claims paid for the quarter totalled $88 million, up $1 million from a year ago.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

(Advocate file photo)
Lacombe man to apply to withdraw manslaughter guilty plea

Tyler John Campbell wants to change plea after judge rejected seven-year sentence

A dose of the Pfizer-BioNTech vaccine being prepared at the COVID-19 vaccination clinic at the University of Toronto campus in Mississauga, Ont., on Thursday, May 6, 2021. THE CANADIAN PRESS/ Tijana Martin
Canada to get two million Pfizer-BioNTech vaccine doses as provinces expand rollouts

OTTAWA — Canada is scheduled to receive two million doses of the… Continue reading

Members of the Sipekne'katik First Nation load lobster traps on the wharf in Saulnierville, N.S., after launching its own self-regulated fishery on Thursday, Sept. 17, 2020. THE CANADIAN PRESS/Andrew Vaughan
U.N. committee to consider racism complaint of N.S. Mi’kmaq fishers against Ottawa

HALIFAX — A United Nations committee on racial discrimination is asking the… Continue reading

Chief Public Health Officer Theresa Tam speaks during a technical briefing on the COVID pandemic in Canada, in Ottawa on Friday, Jan. 15, 2021. Canada's chief public health officer is reminding Canadians even those who are fully vaccinated are not immune from transmitting the COVID-19. THE CANADIAN PRESS/Adrian Wyld
Tam warns that full vaccination does not equal full protection from COVID-19

Canada’s chief public health officer reminded Canadians on Saturday that even those… Continue reading

In this image taken from video by the FDNY, pedestrians hurry away from the scene of a shooting in Times Square, Saturday, May 8, 2021, in New York. New York City police say three innocent bystanders including a 4-year-old girl who was toy shopping have been shot in Times Square and officers are looking for suspects. All the victims are expected to recover. (FDNY via AP)
NYPD officer: 4-year-old shooting victim ‘didn’t even cry’

NEW YORK — A 4-year-old girl who was shot in the leg… Continue reading

Pumpjacks pump crude oil near Halkirk, Alta., June 20, 2007 .A flurry of stock sale financings by oil and gas producers in Canada has sparked optimism among investors that the stalled drilling industry will soon go back to work. But analysts warn that’s not likely to happen this year, THE CANADIAN PRESS/Larry MacDougal
Ensign Energy Services reports $43.6M Q1 loss, revenue down 43 per cent from year ago

CALGARY — Ensign Energy Services Inc. reported a loss attributable to common… Continue reading

Prince Harry, Duke of Sussex speaks at "Vax Live: The Concert to Reunite the World" in Inglewood, Calif. on May 2, 2021, left, and Oprah Winfrey appears at the 75th annual Golden Globe Awards in Beverly Hills, Calif. on Jan. 7, 2018. Winfrey and Prince Harry are teaming up for a series that will delve into mental health issues and feature segments from athletes and stars like Lady Gaga and Glenn Close. The streaming service Apple TV+ plus announced Monday that the multi-part documentary series “The Me You Can’t See” will debut on May 21. (AP Photo)
Oprah, Prince Harry reunite for Apple TV+ mental health show

LOS ANGELES — Oprah Winfrey and Prince Harry are teaming up for… Continue reading

The Weeknd attends the LA premiere of "Uncut Gems" in Los Angeles on Dec. 11, 2019. The Weeknd will celebrate his whopping 16 nominations at the Billboard Music Awards with a performance at the show. Dick clark productions announced that the pop star will hit the stage at the May 23 event. It will air live on NBC from the Microsoft Theater in Los Angeles. (Photo by Richard Shotwell/Invision/AP, File)
Top nominee The Weeknd to perform at Billboard Music Awards

NEW YORK — The Weeknd will celebrate his whopping 16 nominations at… Continue reading

Serena Williams walks past her coach Patrick Mouratoglou during a training session at the Italian Open tennis tournament, in Rome, Monday, May 10, 2021. (AP Photo/Gregorio Borgia)
Serena Williams returning after ‘very intense’ training

ROME — Forget all that speculation about Serena Williams considering retirement after… Continue reading

In this Nov. 17, 2020, file photo, IOC President Thomas Bach visits the National Stadium, the main venue for the 2020 Olympic and Paralympic Games postponed until July 2021 due to the coronavirus pandemic, in Tokyo. Bach has canceled a trip in May 2021 to Japan because of surging cases of COVID-19 in the country, the Tokyo Olympic organizing committee said Monday, May 10, 2021 in a statement. The trip was made impossible because of a state of emergency in Tokyo and other parts of the country that has been extended until May 31. (Behrouz Mehri/Pool Photo via AP, Fo;e)
IOC’s Thomas Bach cancels Japan trip because of virus cases

TOKYO — IOC President Thomas Bach has cancelled a trip to Japan… Continue reading

Quebec Premier Francois Legault chairs a premiers virtual news conference as premiers John Horgan, B.C., Jason Kenney, Alberta, and Scott Moe, Saskatchewan, are seen onscreen, Thursday, March 4, 2021 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Several provinces bring in new restrictions as high COVID-19 case numbers persist

Several provinces are gearing up to tighten public health measures once again… Continue reading

Members of the RCAF take part in a Royal Canadian Air Force change of command ceremony in Ottawa on Friday, May 4, 2018. The Royal Canadian Air Force is hoping Canada will open its doors to military pilots from other countries as it seeks to address a longstanding shortage of experienced aviators. THE CANADIAN PRESS/ Patrick Doyle
RCAF turns to foreign pilots to help with shortage as commercial aviators stay away

OTTAWA — The Royal Canadian Air Force is hoping Canada will open… Continue reading

An arrivals and departures information screen is seen at the Halifax Stanfield International Airport in Halifax on Thursday, Jan. 4, 2018. The chief executive of Atlantic Canada's largest airport is hoping for COVID-19 testing for arriving passengers "sooner rather than later," as an added measure to combat the province's third wave of the virus. THE CANADIAN PRESS/Andrew Vaughan
Halifax airport CEO hopes for more on-site COVID testing ‘sooner rather than later’

HALIFAX — The chief executive of Atlantic Canada’s largest airport is hoping… Continue reading

Most Read