OTTAWA, April 21 Reuters The Bank of Canada on Wednesday said it feared high housing prices could result in stretched borrowing and lending, leaving some households and financial institutions vulnerable to an economic downtown.
National resales have hit record highs amid the COVID19 pandemic while inventories of existing homes are at record lows, with demand supported by relatively high disposable incomes and low mortgage rates.
The central bank said that while the strength in the housing market was rooted in a fundamental increase in demand, past experience showed people could start speculating in property.
This poses several risks. High prices could result in stretched borrowing and lending, leaving some households and financial institutions more financially vulnerable to an economic downturn, the bank said in its quarterly Monetary Policy Report.
The TeranetNational Bank Composite House Price Index in March was up 10.8 on the year, with a record 81 of the broader 32 markets surveyed posting annual gains above 10. That far exceeds the last peak in 2017.
Despite calls for action to cool the market, federal Finance Minister Chrystia Freeland did not unveil any major housing measures in her budget on Monday.
The bank said the pandemic had boosted the attractiveness of larger, singlefamily homes and housing in suburban and rural areas. Although supply cannot not meet the sudden increase in demand in the short run, a large number of building permits have been…