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The painful decoupling offers a glimpse of what awaits both sides if the war in Gaza permanently ruptures ties.
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Mar 11, 2021
By Noah Zivitz
A top Bank of Canada official made it clear on Thursday that surging home prices aren’t going unnoticed, but did not indicate that the central bank is planning any action beyond being on watch for risks to the financial system.
"We've taken note of the fact that house prices have increased relatively rapidly in recent months," said Bank of Canada Deputy Governor Lawrence Schembri in remarks to reporters after delivering a virtual speech to Restaurants Canada.
"One has to recognize that what happened in 2020 in the housing market was very unusual in the sense that there was a period where the housing market was effectively shut down when the resitrictions were quite stringent and widespread, and then there was a reopening of the housing market and so there was a release of pent up demand."
Schembri said a combination of "unusual factors" tied to the pandemic - including Canadians' desire to have more space while working at home and a reluctance among homeowners to list their properties - are the fundamental basis for recent price spikes that've recently caught Bay Street's attention.
Indeed, Rosenberg Research Chief Economist and Strategist David Rosenberg sounded the loudest alarm so far on Wednesday when he said Canada is facing a "huge bubble" of historic proportions.
“This might be one of the biggest bubbles of all time,” he told BNN Bloomberg. “Of course, it’s been predicated on where mortgage rates are.”
Other warnings have emerged recently from economists at some of the country's largest banks.
"Ottawa has been caught completely off-guard in the magnitude of the housing response to very low financing costs," wrote Scotiabank Head of Capital Markets Economics Derek Holt in a note to clients last week. Holt added that the federal government might attempt to play catch up by including some macroprudential measures in the upcoming budget to contain housing prices.
A similar message was delivered by BMO Economist Robert Kavcic in a report to clients last Friday.
"Recall that 2016-2017 was characterized by mini-bubbles in and around Toronto and Vancouver that elicited macroprudential policy responses at both the federal and provincial levels. We’d argue that, rather than a long way off, we’re pretty well there."
The alarm among certain economists has been mounting in the face of increasingly astonishing price growth in some of the country's housing markets.
The average selling price in the Greater Toronto Area jumped 14.9 per cent year-over-year in February to a record $1,045,488 as sales surged more than 50 per cent. And sales in Vancouver were almost 43 per cent above the 10-year average last month, according to the local real estate board, as the benchmark price neared $1.1 million.
But while the price growth is stirring bubble talk on Bay Street, Schembri suggested the Bank of Canada is taking a wait-and-see approach for now.
"What we've seen in the past not only in Canada but in other jurisditctions, is you have these fundamental forces that are initially causing house prices to increase and then they sort of take a little of a life of their own. Our concern is if these price increases were to continue at the same rate and we saw more evidence of speculative activity."
"The critical thing is we're going to be monitoring [home prices]," he said, while noting the central bank will release its next financial system review in May. "That's our major contribution at this point ... being vigilant and analyzing them closely to see if there is a significant pick-up in speculative activity and if there is extrapolative price growth."