Home sales and home prices are breaking records.
Housing starts are beating expectations.
The Toronto and Vancouver housing markets occupy prominent places on a new, global list of least affordable cities.*
Now, Bank of Canada Governor Tiff Macklem says there are early signs Canada’s housing market is overheating. During a session with an Alberta business audience Macklem said there are signs of “excess exuberance” in the housing market.
So far, he said, the move toward bigger houses further away from city centres has not been speculation. The BoC sees it as a response to a need for more working and family space for people who no longer need to go in to the office. The Bank supports its argument by pointing to the fact that larger, more distant homes are rising in value, while city properties are attracting fewer buyers and renters.
But there are signs that practical considerations for price increases may be shifting to speculation.
“What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we’ve seen recently go on indefinitely, and they’re basing their decision on those kinds of assumptions,” he cautioned.
None the less, Macklem said the central bank will hold interest rates down in an effort to stimulate the rest of the economy, at the risk of over stimulating housing. He said the bank would keep a close eye on the housing market and think about how to contain a housing bubble that could lead to future trouble.
“When we see people starting to buy houses solely because they think prices are going to go up, that is a warning sign for us. We are starting to see some early signs of excess exuberance,” he said.
Source: First National