Hot housing markets, rising household debt pose risk to Canada economy - central bank

·1 min read
FILE PHOTO: Governor of the Bank of Canada Tiff Macklem walks outside the Bank of Canada building in Ottawa

OTTAWA, May 20 (Reuters) - The Bank of Canada said on Thursday that high household indebtedness and imbalances in the housing market have intensified in the last year, leaving the Canada economy more vulnerable to economic shocks.

While Canada's housing market boom and the corresponding rise in mortgage debt support economic growth in the short-term, they also increase risk to the economy and financial system over the medium-term, the central bank said.

"The vulnerability associated with elevated household indebtedness is significant and has increased over the past year," the Bank said in its annual review of Canada's financial systems, adding that the quality of new mortgage borrowing had deteriorated during the COVID-19 pandemic.

While consumer debt has fallen since early 2020, an increase in mortgage debt has more than offset that decline, the Bank said, with total household debt rising sharply since mid-2020.

The bank also said Canada's financial system had proven to be resilient to the pandemic "thanks to a well-capitalized banking sector and strong support... from governments and the Bank of Canada."

(Reporting by Julie Gordon and David Ljunggren)

((Reuters Ottawa bureau, +1 647 780 4921; david.ljunggren@tr.com))

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