The Bank of Canada is warning that a rush of investors into the country’s housing market has driven prices to unsustainable levels and increased the risk of a correction.
In a speech to the Ontario Securities Commission, Deputy Governor Paul Beaudry said risks around the housing market have intensified following a boom in prices that appear to be driven by speculative activity.
He added that the number of new mortgages held by investors has doubled over the past year, while those taken on by repeat homebuyers is up by more than 60%.
The higher prices, meanwhile, are forcing some households to take on extremely high levels of debt, adding to the risks that could emerge from a correction.
"The damage can spread far beyond the investors," Beaudry said. "That’s because, for many households, their wealth and access to low-cost credit are tied to the value of their home."
The comments come following one of the biggest upswings in Canadian housing ever this year, with prices climbing almost 40% nationally over the past two years.
The speculative activity, coupled with rising prices, is part of a "worrisome development" that has seen activity in the market driven by "extrapolative" expectations that prices will continue to increase, Beaudry said.
One factor that could push demand for homes even higher is the resurgence in immigration across Canada, Beaudry added. Canada’s borders were closed for most of the pandemic and only recently reopened.
Other vulnerabilities cited in Beaudry’s speech include the risks associated with high household debt levels, and mispricing climate risks that can leave businesses exposed to sudden losses due to the transition to a low-carbon economy.
