The Bank of Canada says surging prices in residential property markets like Vancouver and Toronto are not sustainable at their current pace.
The bank reports that year-over-year price house growth in Vancouver reached 30% in May and 15% in Toronto.
But the central bank in its latest biannual review of risks posed to the Canadian financial system, warns that prospective homebuyers, and their lenders, should not expect recent home price increases to be repeated at the same level in the near future when they are weighing whether to acquire property.
“[Housing market] supply will be somewhat more elastic in the long term, and it is unlikely that demand fundamentals will justify continued strong price increases,” the bank said.
Bank of Canada governor Stephen Poloz told reporters: “If prices are going up because people expect prices to go up, then that, of course, is probably unsustainable.”
Despite the housing boom in the Vancouver and Toronto markets, the bank stated that across the rest of Canada, most markets appear ‘well balanced and price growth is modest’.
The Bank of Canada is not the first to raise concerns about the Toronto and Vancouver housing markets becoming overheated, as the Canada Mortgage and Housing Corporation (CMHC) recently made similar announcements.
CMHC says that many major housing markets are showing signs of overvaluation.
Late last week, the International Monetary Fund (IMF) suggested that Canada may need to introduce fresh measures to curb the housing boom in Vancouver and Toronto, a challenge to policy makers seeking to boost an economy adversely affected by a slump in crude oil prices.
“The weaker economy has reignited concerns about the elevated level of household debt and divergent trends in house prices, which are rapidly rising in Vancouver and Toronto and falling in Alberta,” the group said.