Bank of Canada says investor rush into housing risks correction

The Bank of Canada is warning a rush of investors into the country’s housing market this year has fueled prices and heightened the risk of a correction.

The Bank of Canada is warning a rush of investors into the country’s housing market this year has fueled prices and heightened the risk of a correction.

In a virtual speech Tuesday to discuss financial stability issues, Deputy Governor Paul Beaudry said risks around the housing market have intensified following a boom in prices that appear to be driven by speculative activity. The number of new mortgages held by investors has doubled over the past year, while those taken on by repeat homebuyers is up by more than 60 per cent, according to a chart in prepared remarks provided to reporters.

“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” Beaudry said in a speech to the Ontario Securities Commission. “That can expose the market to a higher chance of a correction.”

The higher prices, meanwhile, are forcing some households to take on extremely high levels of debt, adding to the risks that could emerge from a correction.

“The damage can spread far beyond the investors,” Beaudry said. “That’s because, for many households, their wealth and access to low-cost credit are tied to the value of their home.”

The comments come on the heels of one of the biggest upswings in Canadian housing ever this year, with prices climbing almost 40 per cent nationally over the past two years.