Central bank releases financial system review that focuses on small group of highly indebted people
Bank of Canada governor Stephen Poloz told a news conference on Tuesday that the bank is watching a small group of Canadian households that are highly indebted. (CBC)
Household indebtedness and imbalance in the housing sector are key vulnerabilities to Canada’s financial sector, the Bank of Canada says in a financial system review.
Specifically, the central bank is worried about young people who have taken on high levels of debt so they can buy homes in expensive markets.
The number of households with debt-to-income ratios of 350 per cent and above — considered highly indebted households — has doubled in the past 10 years to eight per cent of the population, the bank said.
About 80 to 87 per cent of the debt is from mortgages, it said. Many of these overburdened homeowners are in markets in Ontario, British Columbia and Alberta where house prices have escalated.
“Income growth hasn’t kept pace with the growth of borrowing, as house prices have continued to rise in these markets,” Bank of Canada governor Stephen Poloz said in a news conference in Ottawa.
A handful in trouble
“There is a not only more of these households, but they also carry a larger portion of household debt.”
He estimated there are about 720,000 such highly indebted households in Canada, and they are a concern because they are concentrated in pockets.
Debt and housing are the same problems flagged in last financial system review six months ago, but the vulnerabilities are “edging higher,” Poloz said.
The risk to these households is an economic downturn that could result in widespread job loss, the bank said.
“Household vulnerabilities could be exacerbated by a severe recession that is accompanied by a widespread and prolonged rise in unemployment,” the central bank said in a news release.
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