Amid higher house prices, rising indebtedness ‘worrisome,’ central bank official says

by CRE03 Feb 2017
Indebtedness is rising the most among those already deep in debt, Bank of Canada Deputy Governor Sylvain Leduc told a House of Commons finance committee on Monday.  “House prices are going up, people are reaching maybe a bit more and getting a bit more indebted.”

Leduc said the rising indebtedness is “worrisome,” as the economic pictures “might change very quickly, putting people under stress, under duress.”

"So having to repay their loans, their debt, might be more complicated, putting stress not only on the macroeconomy but also on the financial system as a whole," he said.

Canada's long housing boom has prompted policymakers to tighten mortgage lending rules several times in recent years in a bid to cool the market and avoid the kind of housing crash that happened in the US, Reuters reported.

Leduc said Canada’s financial system would remain resilient, should there be a large and persistent rise in unemployment.  "We've conducted model simulations to analyze the effects of such a shock and found that the buffers in the Canadian financial system would be sufficient to absorb its impact.”

Related stories:
Record levels of Canadian household debt in Q3 - StatsCan
How can Canadian home owners weather the worst of a housing downturn?

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