In their interest rate announcement this morning, the Bank of Canada singles out the hot housing markets in Toronto and Vancouver, stating that financial vulnerabilities, meaning mortgage debt, are elevated and rising, particularly in the greater Vancouver and Toronto areas.
That’s a significant escalation in language from the last statement, which had mentioned risks “moving higher”.
The Bank also goes on to state that the repercussions from the Alberta wildfires will be larger than expected and GDP growth will now contract by a larger forecast 1% in the second quarter, after the 2.4% advance in the first quarter.
However, as expected, a rebound of 3½% per cent is expected in the third quarter as oil production resumes and rebuilding begins in Fort McMurray.
Nevertheless for the full year 2016, the Bank has cut the overall growth forecast to 1.3%, almost half a percent lower than previously forecast.
Realistically Canada should not be back to what the Bank considers normal growth until late 2017, and that is just over 2% annually, which means that interest rates will likely stay at present levels until at least then, if not into 2018, which will continue to fuel the red hot local housing market.