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Household mortgage debt is growing at its fastest pace since the country emerged from the Great Recession. A real estate sign is pictured in Vancouver, on June 12, 2018.

JONATHAN HAYWARD/The Canadian Press

Canada’s housing agency raised concerns about rapidly rising mortgage debt, as the work-from-home trend increases competition for larger properties and drives up house prices in suburbs and beyond.

Household mortgage debt is growing at its fastest pace since the country emerged from the Great Recession, with homeowners taking advantage of ultralow borrowing costs. It hit $1.67-trillion in December, a 7.6-per-cent increase over the year.

Although Canada Mortgage and Housing Corp. said it is likely that higher-income households have been pushing up prices, the housing agency said there were risks that they would not be able to support their debt.

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“That is what we are concerned about. Debt levels have continued to go up,” CMHC’s deputy chief economist Aled ab Iorwerth said on a call with reporters to discuss the housing market. “It may be that the housing market is driven more by higher-income households and they may be able to sustain that [debt], but it remains true that it continues to increase. There is a little bit of concern there,” he said.

He made the comments in the same week that Bank of Canada Governor Tiff Macklem said the central bank was “acutely aware” that in a low interest rate world there was a risk that households can get stretched.

The pandemic’s stay-at-home requirement has been a major reason homebuyers sought bigger properties with more green space outside of the city. However, no one knows whether companies will eventually require their staff to return to their city offices when the pandemic ends.

“We don’t know how permanent this is,” Mr. ab Iorwerth said. “Will businesses expect people to show up for their physical place of work or will they allow people to come in once or twice a week?”

Some businesses have already decided to make remote work permanent or downsize to smaller offices in the suburbs. But many companies have not made the decision, and if businesses require staff to physically return to the downtown core, homeowners unable to do the longer commutes could lose their higher-paid jobs.

“That is one uncertainty. When you have this dynamic playing out when people are already heavily indebted, that makes the whole community vulnerable to more shocks,” Mr. ab Iorwerth said.

Over all, household finances have improved with homeowners paying down other types of debt such as credit cards and personal loans. Although the cost of servicing debt has declined because of the low interest rates, the easy money is driving up mortgage debt and housing prices.

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Mr. Macklem said the central bank is “starting to see some early signs of excess exuberance” in the housing market, although he added that the country was a long way from 2016 and 2017, when, he said, the market was really hot. “When we see people starting to buy houses solely because they think the prices are going to go up, that is a warning sign for us,” he said at a virtual industry event on Tuesday.

CMHC is due to release a new forecast soon. Last year, after the lockdowns briefly hammered home resales and prices, CMHC predicted the average selling price could drop as much as 18 per cent in the worst-case scenario.

Mr. ab Iorwerth said he expected the trend toward suburban and semi-rural houses to continue, although he did not expect the sharp rebound in sales and prices to remain at the same pace as last year’s initial surge.

In Toronto, the average selling price of a detached house rose 16 per cent in the 12 months to January while climbing 37 per cent in the surrounding suburbs, according to the local real estate board.

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