In its recent financial system review, the Bank of Canada dedicated a portion of its analysis to the Canadian housing situation which it considers to be one of the six points of vulnerability of the Canadian economy. Here are some highlights from the sections on household debt and the housing market:
The decline in household consumer debt was offset by an increase in residential mortgage debt which rose by 8.2 per cent between February 2020 and March 2021.
The quality of new mortgages deteriorated slightly during the pandemic: 21.7 per cent of these newly issued mortgages were made with loan-to-income ratios above 450 per cent, a peak even surpassing that observed in 2016–2017.
Recent activity in the housing market has been exceptionally strong following a drop in residential resales in the spring of 2020. The ratio of sales to new listings across Canada reached 75.2 per cent in April 2021.
Increases in house prices across Canada have been broad-based, reaching 23 per cent between April 2020 and April 2021.
The vulnerability of the financial system linked to imbalances in the housing market has intensified, due to a particularly high demand-to-supply ratio, rapid price increases and expectations of price increases creating a cascade effect. The median expected growth rate in house prices over the next 12 months reached 4.5 per cent in the first quarter of 2021 for Canada, excluding Ontario (6.3 per cent) and British Columbia (5.9 per cent).
The Bank believes that the current boom in the housing market is being driven by the demand from prospective homeowners rather than an increase in investor demand. The share of homes purchased by investors increased to 20.1 per cent in February 2021 across Canada, following a peak of 21.7 per cent in January 2018 and a decline in 2019–2020.