Canada’s central bank chief sees a housing bubble with rising household debt

Analysts at Bank of Canada were worried when they saw rising debt levels on the one hand and continued growth in house prices on the other, and the statistician Mark Carney made it clear that the bank would be closely watching to make sure the levels didn’t match. Mr. Carney used an appearance before a parliamentary committee of legislators on Wednesday to spell out the dangers posed by Canada’s housing market and mortgage market, which have become increasingly strained. “The household credit market is sensitive to changes in interest rates,” Mr. Carney said.

“That is both because of the risk of interest rate adjustment on the nominal side, and also because of the risk of equity withdrawal from the housing market,” he added.

If household debt were to rise too high or the housing market were to slow down, that could become a risk to the overall economy.

Investors looking at the Bank of Canada’s forecast for growth in the months ahead have argued that the next rate hike is going to be rather timid and not until the second half of 2019. They say that the bigger worry is that the Canadian housing market may soften. Yet the central bank says it may take until then to get a good read on how strong the sector may be.

“The degree of forward-looking visibility on housing activity is probably more limited than it is for the level of the [rate of] nominal GDP, so in general, we would want to be a bit more exposed on the downside in housing than we are in nominal GDP and things tend to be cyclical and accommodation and food services tend to be cyclical as well,” Mr. Carney said.

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