High home prices, debt levels could ‘accelerate’ economic downturn, Macklem warns
Global News
Bank of Canada governor Tiff Macklem said the high amount of debt Canadians have tied up in the housing market is a 'vulnerability' as the economy begins to slow.
The governor of the Bank of Canada warned Thursday that the high level of household debt in the country will be a “vulnerability” if the economy slows and house prices see a steeper decline than first thought.
Speaking to the Public Policy Forum in Toronto, Tiff Macklem was asked whether the central bank’s campaign to raise interest rates and tackle high inflation will see an outsized impact on the country’s housing sector.
He identified the run-up in home prices over the COVID-19 pandemic and the big mortgages Canadians took out to enter the market over that time as a risk the bank is watching closely.
“If the economy were to slow sharply, that vulnerability could accelerate the downturn,” Macklem said.
“If people lose their jobs, they’re going to have a hard time covering their mortgage and if they have a very big mortgage, if their house price comes down, even selling their house may not cover it. That is a vulnerability.”
The Bank of Canada’s policy rate was at 0.25 per cent for the majority of the pandemic, and many Canadians took the opportunity to enter the housing market with low mortgage rates.
During this period, home prices rose more than 50 per cent and the housing market was “unsustainably hot,” Macklem said Thursday.
Variable-rate mortgages, which respond directly to the central bank’s interest rate decisions, overtook their fixed-rate counterparts as the most popular choice for homebuyers in the second half of 2021.
