The Canadian financial system's most significant vulnerabilities have increased in the past six months, the Bank of Canada warned June 8, but added that the system remains resilient.
In its latest financial system review, the central bank said household debt and housing market imbalances have grown since December 2016.
The central bank said household indebtedness continues to rise, driven largely by growth in mortgage lending in the Toronto and Vancouver areas. The bank warned of rising share of uninsured mortgages, especially in markets with high house prices. It also cited greater use of home equity lines of credit as a factor contributing to the household vulnerability.
Meanwhile, imbalances in the housing market have widened, mainly due to rising prices in Toronto and surrounding areas. While strong fundamentals are supporting price growth in both the Toronto and Vancouver areas, "extrapolative expectations" are also playing an important role. Macroprudential and housing policy measures are, however, expected to help mitigate this vulnerability over time.
Despite the increasing household vulnerabilities, "the financial system remains resilient, and macroeconomic conditions continue to improve," said Bank of Canada Governor Stephen Poloz.