At least some economists want Bank of Canada Governor Mark Carney to elaborate today on his views on housing and household debt.
Having flagged the issue for months now, Mr. Carney speaks today to the Economic Club of Toronto on "Reflections on the Economic Outlook." Given Mr. Carney's repeated warnings on the high levels of household debts, economists Derek Holt and Gorica Djeric want the central bank chief to update markets on the outlook for housing.
"Our concerns have not gone away," the economists said in a research note. "We always argued that there would not be a U.S.-style housing bust principally because of work we've done on the vast differences between Canadian and U.S. mortgage and banking markets, but we still subscribe to the view that house prices face downside risks although the exact timing is uncertain."
Most economists don't expect a U.S.-style meltdown, but continued low interest rates, which Mr. Carney used to fight the recession, have helped lead to a continued build-up in personal debt.
And as The Globe and Mail's Tara Perkins reports today, the situation has become so worrisome that federal officials are studying the possibility of new measures to curb that increase. Many of the country's bankers support such a move, which could come in the next federal budget, Ms. Perkins writes.
The Scotia Capital economists noted that the home ownership rate in Canada is at a record high of about 70 per cent - that's a bit more than the peak in the United States. Home prices are also at record levels and the market is overvalued, while the debt-to-income ratio sits at 145 per cent, which is "not terribly lower than a properly defined U.S. comparison." The ratio of debt to assets, meanwhile, is the second-highest in the G7.
Real estate, they said, may be getting a temporary boost because fixed rates have been kept low as the Federal Reserve's low policy rate ties Mr. Carney's hands from going much higher.
"But the [Bank of Canada]is right to flag the risks of low rates for a long period," said Mr. Holt and Ms. Djeric. "In our view, low rates for a long time translate into concerns about transferring even greater volumes of homebuyers out of the future into the present. When that future comes, Canada's outperformance on GDP growth compared to the G7 average over the past decade that owed itself significantly to the unleashing of pent-up demand in housing and consumption from the 1990s into the past decade will have run its course and a softer demand environment for housing will be unleashed."