12 June 2014

“Housing prices have been rising since December already,” – the central bank’s governing council said. “And though the more restrained pace of price growth means a soft landing, they are still increasing faster than disposable income,” – the report noted.

“The problem is that higher household debt-to-asset ratios and debt-service ratios may raise the possibility of bankruptcy in case borrowers’ debts become too high after a rate hike or their homeowner equity reduces because of home prices decrease,” – said the report.

As you know, earlier a few large Canadian banks cut their five-year fixed rates below 3% level, but Finance Minister Joe Oliver doesn’t see a problem here.

While the BoC’s report doesn’t show a straight connection between low mortgage rates and the government insurance system, it still warns financial institutions from risking too much in their attempts to increase the profit due to lower interest rates.

As usual, the central bank’s governor, Stephen Poloz noted the world has entered into new standards of normal in case of economic growth and interest rates – more modest than before the 2008-09 financial crisis.

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