BoC: Concerned about household indebtedness and rapid rise in house prices

In its Financial System Review Summary, the Bank of Canada (BoC) noted that it remains concerned about household indebtedness and rapid rise in house prices, as reported by Reuters.

Additional takeaways

"Vulnerability associated with imbalances in housing market has increased."

"If a future shock cut house prices and incomes, some households could have to reduce spending; this would slow economy and possibly put stress on financial system."

"Many households have taken on large mortgages compared to incomes so have less flexibility to deal with unexpected events."

"Overall increase in mortgage debt has more than offset declines in consumer debt; concerned that some people may be buying homes now because they expect prices to keep climbing."

"Housing market activity is very strong, driven primarily by fundamental factors; signs of financial stress are low, thanks mainly to exceptional government support."

"Potential demand for liquidity in bond market is growing faster than what banks can supply in times of high stress; financial system could be vulnerable to sudden spike in demand for cash."

"Assets that are exposed to climate risks are generally mispriced; this could cause sudden losses due to severe weather events and shift to a low-carbon economy."

"Financial system participants remain confident in resilience of Canadian system; BoC analysis indicates it would take a very large and persistent shock to impair lending from major banks."

Market reaction

The USD/CAD pair continues to push lower and was last seen losing 0.45% on the day at 1.2075.