OTTAWA (Reuters) - Rising house prices and consumer indebtedness, particularly among already indebted Canadians, is a worry because the economic picture could change without warning, Bank of Canada’s Deputy Governor Sylvain Leduc said on Monday.
Speaking to a House of Commons finance committee, Leduc said the central bank has repeatedly warned about rising debt levels among consumers in case of an unexpected shock, even though the risk of an adverse event is low.
“House prices are going up, people are reaching maybe a bit more and getting a bit more indebted. And the fact that the indebtedness is rising the most for highly indebted people is really worrisome, because again the macro conjecture might change very quickly, putting people under stress, under duress,” Leduc told the committee.
“So having to repay their loans, their debt, might be more complicated, putting stress not only on the macroeconomy but also on the financial system as a whole,” he added.
Canada’s long housing boom has prompted policymakers to tighten mortgage lending rules several times in recent years in a bid to cool the market and avoid the kind of housing crash that happened in the United States.
Leduc said Canada’s financial system is strong enough to withstand a large and persistent rise in unemployment, which he said was the biggest risk facing its financial system.
“We’ve conducted model simulations to analyze the effects of such a shock and found that the buffers in the Canadian financial system would be sufficient to absorb its impact. So while there would be stress, the financial system would remain resilient,” he said in his opening statement.
Reporting by Matt Scuffham in Toronto and Andrea Hopkins in Ottawa; Editing by Diane Craft and James Dalgleish