The Bank of Canada published its latest review of the financial system Tuesday and the housing market was in focus. Governor Stephen Poloz highlighted the risk that the housing market poses to the financial system through increasingly large mortgages required in some markets and the imbalances in the housing sector. He stressed that Canada’s financial institutions, including the largest mortgage lenders, are in good shape with capital reserve requirements providing a buffer against financial shocks: “Recent changes by Canadian authorities to the rules for mortgage financing will help to mitigate these risks as we move into 2016,” he said.

Mr Poloz referred to the “vulnerabilities” created by high levels of household debt and the housing market but also noted that the bank’s expectation is that “Housing activity should stabilize in line with economic growth, as the driver of growth in the economy switches from household spending to non-resource exports.” Although they are not on the horizon the bank warns of the dangers of severe recession and increasing unemployment, or a sudden rise in global risk premiums which would add to borrowing rates.
 

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