Household Debt Makes Market Vulnerable

The Financial System Review was given account of by the Bank of Canada and cautioned that the debt of households and the real estate market has had increased risk and vulnerability in the past six months. Governor Stephen Poloz mentioned that; “the financial system remains resilient, and macroeconomic conditions continue to improve.”

Mortgage lending has caused household debt to go up, mostly in areas like Vancouver and Toronto. Even though the bank mentioned that the credit quality has gone better in the insured mortgage sector, it however said the uninsured mortgage market is accumulating with few of the mortgage presenting “risky characteristic.” The risk of increase in house prices might probably be mitigated by the macroprudential and housing policy measures concerning the housing market said Governor Poloz.

It was mentioned in the study the two major risks, together with an externally-generated slump which might involve a sharp fall in the price of homes together with increase in unemployment which is a hindrance to the ability of homeowners to have their mortgage debt looked at.

If this is to happen, the report of BoC noted the impact would be serious, however, it said there is a lower chance of this happening. The highest risk presented is the one in Toronto, Vancouver and nearby areas is correction in home price. BoC said that although the chances of it happening are high, the impact on the economy is not as serious as imagined.