Canadian Economy At Risk Due To Increase Debts And Real Estate Activity

As household debts across the country ascends higher, the Canadian economy rests under risk whilst real estate activity continues to be vibrant. This, according to the central bank is a cause for great concern.

The Bank of Canada on Thursday, continued to express its fears over the high debt ration of Canadians, backed by higher home prices. Nonetheless, these concerns are not stopping Governor Stephen Poloz from reassuring Canadians not to panic.

In a statement, he noted that, “The Canadian economy stands to gain a lot from the housing market.”

Later in an interview with reporters, filled with enthusiasm, he went on to express that, “I am very confident that the economy is showing signs of stability and does not portray any bearings of succumbing to the threats of the real estate market.”

This basically means that the economy has the capacity to bounce back irrespective of the potential risks it faces.

The concerns of the Bank came up in its semi-annual evaluation which looked into the immediate risk faced by the economy, which had the capabilities of possibly affecting the overall financial system. In the appraisal of the bank, it was noted that the potential risks towards the economy, are connected.

The growth in mortgage lending in both Toronto and Vancouver, has resulted in a massive upsurge in the debt ratio of households across Canada. The Bank went on to expound that people with high debt ratios find it difficult to adjust to any minimal financial challenge that affects their income. In the same way, an increase in debt levels will most probably affect the economy as trivial changes to the economy will affect households.

The Bank of Canada, for quite a few years now, has been issuing a warning about the alarming rate of household debts in Canada. Although according to Poloz, the debt ratio continues to increase as a result of more first-time buyers trying to enter the housing market.

The equation is a very simple one Poloz notes, because the debt is being fueled by the need of people to possess their own homes. This for him, is a reflection of a vibrant economy. Nevertheless, reports from the central bank indicate that the Canadian economy has been rising at a steady pace for quite some time now.

In recent years, quite a lot of provincial governments have been making efforts to control the real estate market but at this point in time, it is difficult to determine if the government should introduce more regulations to control the searing hot real estate market.

The bank however, cautioned that new mortgage changes might result in people borrowing more in order to make down payments for homes.



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