“While historical experience suggests that localized Canadian house price cycles, both in terms of the factors behind the boom as well as the correction, have typically not spilled over to other regions, it would be a major event if it occurred,” the Bank of Canada wrote in its Monetary Policy Report, released Wednesday.
“If corrections in several important local markets materialized simultaneously, the spillover effects to the rest of the economy could be significant.”
The Central Bank is still concerned about household debt, and points to two major markets that are at the biggest risk of experiencing a housing price correction.
“Elevated house prices and debt levels relative to income continue to leave households vulnerable,” it wrote.
“The adverse impact of the oil price shock in Alberta and continued robust price growth in Toronto
suggest a risk of a correction in these markets.”
The Bank of Canada has noted moderation in the housing market over the past few months, citing a slow-down in resale and start activity.
When it comes to major markets, however, Canada’s housing is diverging in two very different directions.
“To date, the impacts on housing activity from falling energy prices appear to be largely restricted to Canada’s energy-producing regions,” the BoC wrote.
“The previously robust markets of Calgary
have seen steep declines in resale activity and a significant slowdown in the year-over-year growth of house prices in recent months.
“At the same time, resale activity has remained strong in British Columbia and Ontario, particularly in Vancouver
, where house price growth is still elevated.”
For its part, the IMF once again chimed in on the state of the housing market Wednesday as well, expressing concern about record-low interest rates.
“If interest rates rose or there was a slump in employment many borrowers might not be able to make mortgage payments,” the IMF stated in its World Economic Outlook.
“The government has already taken some steps to make qualification for mortgages a bit stronger. Other policies to dampen demand may be required.”
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A soft landing for the housing market is still the most likely scenario, according to the Bank of Canada, but it is still wary of a more disastrous correction.