The Bank of Canada said on Thursday that high household indebtedness and imbalances in the housing market have intensified in the last year, leaving the economy more vulnerable to economic shocks.
The remarks were the most expansive commentary the central bank has made about the risks posed by a hot housing market since the start of the COVID-19 pandemic early last year.
Canada’s housing market boom and the corresponding rise in mortgage debt support economic growth in the short-term but also increase the risk to the economy and financial system over the medium-term, the central bank said in its annual review of financial systems.
Although consumer debt has fallen since early 2020, an increase in mortgage debt has more than offset that decline, with total household debt rising sharply since mid-2020.
“The vulnerability associated with elevated household indebtedness is significant and has increased over the past year,” the bank said, adding the…