BMO Economics isn’t ruling out the possibility of a policy response to cool rapidly overheating Canadian real estate markets.

In a note to clients Friday, BMO Senior Economist Robert Kavcic said policymakers may be hard-pressed to stand idly by as home prices post double-digit percentage gains not only in the nation’s largest markets, but in many outlying communities as well.

“Canadians in some markets are now buying houses, rural properties and cottages like they were buying toilet paper a year ago. Some areas are seeing prices up by a third, not from pre-COVID levels, but from just late last year, with widespread belief that there’s nothing to stop the momentum—after all, we’ve been told repeatedly that interest rates aren’t moving,” Kavcic said.

“One wonders now, assuming that interest rates won’t budge, if and when Ottawa is going to swing the policy hammer, and what that might look like.”

Over the course of the pandemic, average prices in Toronto and Vancouver – traditionally the nation’s priciest markets – have exceeded $1 million amid soaring demand and rock-bottom interest rates.

That heat has leaked into bedroom communities as work-from-home directives during the pandemic have allowed employees to move further afield. That’s pushed prices in the likes of Durham Region, just east of Toronto, nearly 30 per cent higher over the course of the last year, divorcing the residential real estate market from economic fundamentals.

Kavcic isn’t alone in speculating further action could be in the offing. In a note Wednesday, RBC Senior Economist Robert Hogue said policymakers should put every option on the table to curb rapid home-price appreciation, including “sacred cows” like a capital gains tax on the sale of a principal residence.

Absent any government intervention, there’s little sign that the central bank will do any heavy lifting when it comes to taking some heat out of housing. The Bank of Canada has pledged to keep its policy rate at the effective lower bound until at least 2023 as it aims to support an economic recovery from the ravages of the pandemic by providing low borrowing costs.