House prices rise 0.8% in April, FHFA says
Here's Carney's remarks June 15, 2011:
Some key points:
- It is a pleasure to be back in Vancouver, a place often rated as the world’s most liveable city. Less frequently is it viewed as the most affordable. In the past three years, the average Vancouver house price is up about 30 per cent, making this city an extreme example of general developments in Canadian housing.
- A home purchase triggers the biggest liability most families will ever take on. The value of housing-related debt in Canada has nearly tripled over the past decade to $1.3 trillion. This debt is also the single largest exposure for Canadian financial institutions, with real estate loans making up more than 40 per cent of the assets of Canadian banks, up from about 30 per cent a decade ago (Chart 2).
- This unprecedented exposure exists in the context of a Canadian mortgage market that is subject to more stringent checks and balances than in the United States. For instance, almost all Canadian mortgages are full recourse, mortgage interest is not tax-deductible, and high-ratio lending standards are generally prudent. These factors help instil responsibility and discipline on both homeowners and lenders. Nonetheless, the central position of housing assets and liabilities on the balance sheets of both households and financial institutions means that any housing excesses could generate important vulnerabilities in the financial system.
Financial vulnerabilities have increased as a result. Canadians are now as indebted (relative to their income) as the Americans and the British (Chart 9). The Bank estimates that the proportion of Canadian households that would be highly vulnerable to an adverse economic shock has risen to its highest level in nine years, despite improving economic conditions and the ongoing low level of interest rates.5 This partly reflects the fact that the increase in aggregate household debt over the past decade has been driven by households with the highest debt levels (Chart 10).
The Bank manages policy for the economy as a whole, rather than any specific region or sector. In this context, what does the Bank of Canada expect for housing? In a word: moderation
For example, while measures of housing affordability remain favourable, this is largely because interest rates are unusually low. Rates will not remain at their current levels forever. The impact of eventual increases is likely to be greater than in previous cycles, given the higher stock of debt owed by Canadian households. At a 4 per cent real mortgage interest rate—equivalent to the average rate since 1995—affordability falls to its worst level in 16 years (Chart 17).10 As I have observed, some markets are already severely unaffordable even at current rates.