Bank of Canada doesn’t see bubble signs or speculation on real estate market, but keeps monitoring rapid price acceleration

According to the central bank’s governor Tiff Macklem, the Bank noticed some early signs that people may be buying properties only because they expect home prices to rise.

Macklem says growing prices, especially in the sector of single-family houses, are still far from the heated market Canada saw almost five years ago.

The gain was supported by the combination of a stronger demand for larger space as millions of Canadians work remotely, lack of supply and extremely low interest rates.

The Bank of Canada’s key lending rate has remained unchanged at 0.25% for about 11 months already, and its quantitative easing program helps to reduce the rates on mortgages in order to increase spending.

Macklem says the BoC is surprised by the recovery in the real estate market.

In spite of early signs of overheating in Canada’s housing market, Tiff Macklem doesn’t plan to raise interest rates until the economy and employment get normalized after a slump caused by COVID-19 pandemic.

However, as low rates have increased borrowing by businesses helping to increase expansion and share prices, low mortgage rates have made it easier for the homeowners to raise the prices.

Macklem says the switch to larger homes in suburbs has not been speculation so much as the need for more working space for employees who no longer have to work in offices.

It turns out that bigger properties far from urban centres are rising in value, while inner-city homes are attracting fewer buyers or renters.

Nevertheless, there are certain signs that the real motivation for higher prices may be changing to the type of speculative boom we’ve seen in 2016 and 2017. The government tried to restrain it with tax measures and stress tests.

«We worry that people expect the recently seen prices increase to continue forever, and that they base their decision on such assumptions,» — he said.

Although he didn’t specify what kind of measures he would take to stimulate jobs without overstimulating housing, Macklem noted the BoC keeps an eye on the real estate market and thinks how to restrain a market bubble that may lead to possible problems.

«When people start purchasing properties only because they believe prices will grow, it’s a warning sign for us,» – he noted. «We begin to see certain early signs of excess exuberance.»