BoC says household debt and house prices are top risks

The Bank of Canada building is seen on Wellington Street in Ottawa, Tuesday, May 31, 2022. The Bank of Canada will outline what it considers to be the key vulnerabilities and risks to Canada’s financial system later this morning. THE CANADIAN PRESS/Justin Tang

OTTAWA – The Bank of Canada says vulnerabilities related to high household debt and high house prices have increased and pose significant risks to Canada’s financial system.

In its latest review of the financial system, the central bank says the double factor has increased the downside risk to economic growth, as raising rates to counter inflation increases the risk that households will have to divert consumption to repayment of debt.

It says assessing vulnerabilities related to high household debt has become more complex over the past two years as household finances have generally improved even as debt levels have increased.

The bank says, however, that a growing share of households are stretching themselves financially to buy a home, and that those households in particular may not be able to tap into home equity if house prices were to correct.

The bank says other vulnerabilities in the financial system include cyber threats given the interconnected nature of the financial system and the fragile liquidity of fixed income markets.

He says Russia’s invasion of Ukraine has also further complicated the transition to a low-carbon economy and increased the risks of a revaluation of assets exposed to climate change.

This report from The Canadian Press was first published on June 9, 2022.

Christy J. Olson