The Governor of the Bank of Canada is worried that Canadians might be taking on too much debt to buy into the nation’s “hot” housing market. In an interview with Financial Post, Tiff Macklem said that loan levels relative to home values are growing which is an indication that some Canadians are overextending – taking up too much debt.
Macklem added that if Canadians are basing their decision on the belief that home values will continue rising indefinitely, that is a mistake. They are not sustainable. In this case, the Bank of Canada can do little given that interest rates have to stay low to support the recovery from the COVID-19 pandemic.
The Chief Executive Officers of Bank of Montreal and Royal Bank of Canada, Robert Kavcic and Robert Hogue respectively, have warned officials that they need to take steps to break the psychology of expecting continued gains in real estate. At the same time, Kavcic and Hogue identified a lack of housing supply to be a major driver of the recent appreciation in home values.
Among policies that are being suggested to break down on consumers’ beliefs is implementing taxes on speculators and the elimination of blind bidding for homes. The first policy, if adopted, could put an end to the popular tax exemption for capital gains on primary residences. While the elimination of blind bidding could mean the end of unnecessary inflation of home prices.
The Federal government plans to implement taxes on non-resident homeowners to make it more difficult to own a home.
References:
1) Altstedter, A., & Hertzberg, E. (2021, March 31). Bank of Canada GOVERNOR Sees 'WORRYING' signs in housing market. Retrieved March 31, 2021, from https://www.bloomberg.com/news/articles/2021-03-31/bank-of-canada-governor-sees-worrying-signs-in-housing-market
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