Stephen Poloz
Governor of the Bank of Canada
Threat from housing, high debts still growing, Poloz says. The dual threats of runaway regional housing markets and high household debt have grown over the past six months, the Bank of Canada said, but it believes Canada's financial system "remains resilient," thanks in part to a strengthening economic backdrop.
"The two most important vulnerabilities for Canada's financial system – the elevated level of household indebtedness and imbalances in the Canadian housing market – have moved higher over the past six months," Poloz said at a news conference in Ottawa.
Mortgages and home equity lines of credit make up 90 per cent of Canada's household debt levels, and the Bank of Canada is concerned that mortgage credit has been growing faster than disposable income. A growing number of highly indebted people are taking out uninsured mortgages with long amortization periods, and this is a concern for the bank.
"Highly indebted households have less flexibility to deal with sudden changes in their income. As the number of these households grows, it is more likely that adverse economic shocks to households would significantly effect the economy and the financial system."
Mortgages and home equity lines of credit make up 90 per cent of Canada's household debt levels, and the Bank of Canada is concerned that mortgage credit has been growing faster than disposable income. A growing number of highly indebted people are taking out uninsured mortgages with long amortization periods, and this is a concern for the bank.
"Highly indebted households have less flexibility to deal with sudden changes in their income. As the number of these households grows, it is more likely that adverse economic shocks to households would significantly effect the economy and the financial system."
It took two years but he sees the light. It's funny they said that the Central Banks role is to contain inflation but somehow housing inflation didn't count until now.
Bank of Canada governor Stephen Poloz says higher interest rates will not be enough to cool the speculative frenzy in southern Ontario's hot housing market. In an exclusive interview with BNN, Poloz said even a "five per cent" hike in interest rates would not be enough to deter real estate risk-takers.
By this time Stephen Poloz is solidly in the bubble camp.
Mr. Poloz spoke directly to Canadian home buyers, suggesting they ask themselves, "Why am I buying this house?"
If home owners are buying because they like the house and want to live in it for a "reasonable period of time," then they could weather a 10-per-cent price correction because they wouldn't need to sell or move, he said.
"You can just continue to pay your mortgage and some day it will be back up above the price that you paid, and you wouldn't worry about it much," he said.
"But if you're buying it on spec and you only flip it ... then you stand to lose if there is a correction, and maybe a significant amount of money. So that's the kind of risk assessment that these buyers – and their lenders – need to ask."
If home owners are buying because they like the house and want to live in it for a "reasonable period of time," then they could weather a 10-per-cent price correction because they wouldn't need to sell or move, he said.
"You can just continue to pay your mortgage and some day it will be back up above the price that you paid, and you wouldn't worry about it much," he said.
"But if you're buying it on spec and you only flip it ... then you stand to lose if there is a correction, and maybe a significant amount of money. So that's the kind of risk assessment that these buyers – and their lenders – need to ask."
Reading between the lines, Stephen Poloz anticipates a 10% price correction in April 2017. Let's see how far this goes.
"We don't believe we're in a bubble," Bank of Canada Governor Stephen Poloz said in testimony Tuesday to the House of Commons Standing Committee on Finance. He said Canada's long-running boom in the housing market hasn't been underpinned by the kind of rampant speculative buying that is the hallmark of an asset bubble.
"Our housing construction has stayed very much in line with our estimates of demographic demand," he said. "There's no excess."
"Our housing construction has stayed very much in line with our estimates of demographic demand," he said. "There's no excess."
Head in sand under Harper. Does a 180° under Trudeau.
Poloz said the probability of a sharp correction is small and, if it comes, it will be caused by external factors, such as a sudden failure of the economic recovery that seems to be underway in the world economy.
He refused to comment on a suggestion by the OECD that the government end its practice of insuring high-risk mortgages through Canada Mortgage and Housing Corp. Poloz said that question would be better answered by the federal government or CMHC.
"It's important to keep the context, which is that we went through a sizeable global downturn. When you put interest rates down as low as you can, you expect to have a reaction somewhere and it won't come from businesses facing less demand, but from the banking sector," he said.
"Stronger housing and stronger consumption was exactly what we were hoping to achieve."
Poloz said the central bank is "comfortable" with the current trends in the housing market and believes Canada's house prices will have a soft landing.
He refused to comment on a suggestion by the OECD that the government end its practice of insuring high-risk mortgages through Canada Mortgage and Housing Corp. Poloz said that question would be better answered by the federal government or CMHC.
"It's important to keep the context, which is that we went through a sizeable global downturn. When you put interest rates down as low as you can, you expect to have a reaction somewhere and it won't come from businesses facing less demand, but from the banking sector," he said.
"Stronger housing and stronger consumption was exactly what we were hoping to achieve."
Poloz said the central bank is "comfortable" with the current trends in the housing market and believes Canada's house prices will have a soft landing.
Strange quote from the head of a central bank. Aren't external shocks something to account for? Or is this a sign that the Canadian central bank values being over-leveraged as much as the average Canadian family.
He's bracing for an internal housing shock 2 years after saying it's not a bubble. But what happens if he's wrong about the economy now as well? If there is a simultaneous external shock that threatens the economy ala 2007/8, could Canada survive that scenario? Being this over-leveraged makes you vulnerable.