Bank of Canada Bank of Canada Governor Mark Carney sounded more alarm bells last week. It was a warning about the perfect storm of rapidly rising home prices and the future vulnerabilities of homeowners when interest rates start rising.

Fittingly, Carney was speaking in Vancouver, where home prices are up a whopping 25.7% year-over-year—if you include the sales of high-end homes.


Carney noted that the average house price nationally is at four-and-a-half times the average household disposable income. This compares to an average ratio of three-and-a-half times during the past quarter century, he said. Here’s a Chart. (Mortgage affordability, however, is still just slightly above normal, based on long-term averages, but that is based on current interest rates.)

While he didn’t come out and call Canada’s housing market a “bubble,” he certainly warned about the current level of “financial vulnerabilities.”

“…the ratio between the all-in monthly costs of owning a home and renting a home, as measured in the CPI, is close to its highest level since these series were first kept in 1949,” he said. As a result, “the proportion of Canadian households that would be highly vulnerable to an adverse economic shock has risen to its highest level in nine years, despite improving economic conditions and the ongoing low level of interest rates.”

Other points Carney raised during his speech:

  • An ample supply of housing development and high investor demand reinforces the possibility of an “overshoot” in the condo market in some major cities
  • “Cheap credit has been used to bid up the price of Canadian houses”
  • Residential investment as a whole (including new home construction, renovations and ownership transfer costs) has “consistently exceeded its long-term average share of the overall economic activity for more than seven years”
  • Residential investment “is now at levels that have previously proved to be peaks in Canada and, on a relative basis, in the United States,” he said. (Chart)

Steve Huebl, CMT