Former Bank of Canada governor Stephen Poloz says he’s “not really” concerned about Canada’s housing markets right now even as sales and prices heat up in the largest cities.

Poloz made the comment in a conversation with BNN Bloomberg’s Amanda Lang Tuesday at the Bloomberg Canadian Fixed Income Conference, pointing to a “K-shaped” economic recovery that’s taking place amid the COVID-19 pandemic.

“The top part of the K has recovered well. Basically, that pertains to around 95 per cent or a little more of the economy,” Poloz said.

“The bottom part, where the damage is the greatest, it’s about five per cent or less of the economy,” he added, pointing to industries such as retail, hospitality, and the airline sector that have suffered the most.

Poloz said while there’s a possibility of long-term unemployment in those sectors, the other 95 per cent  — that is, the upper-half of the K — will determine how the economy will behave.

“And with interest rates at generational lows, you are bound to see a certain amount of heat in the housing market,” Poloz said. “We have months of pent-up demand coming through there, and of course we’re seeing the results of that combined with low interest rates now.”

Home prices have continued to climb in Canada’s hottest housing markets during the course of the pandemic. In September, average prices in the Greater Vancouver Area rose 5.8 per cent year-over-year to $1,041,300. Meanwhile, Toronto home prices hit a new record for the month, with the average selling price in the city rising 14 per cent year-over-year to $960,772 in September.

Poloz’s commentary comes less than a week after Tiff Macklem, the Bank of Canada’s current governor, said the central bank is paying close attention to the housing market amid the historically-low rate environment.   

“We will also watch for signs that housing markets are being driven higher by speculation that prices will keep rising,” Macklem said in a speech last Thursday. “And we will watch whether people buying houses are taking on outsized debt relative to their income.”

Macklem said that if too many households become “dangerously over-leveraged,” policymakers will make use of macroprudential tools at their disposal.

Poloz noted that even though Canadians are enduring the impacts of an economic downturn, income has been supported through government programs to help those who have suffered losses due to the pandemic.

“We’re supporting income so that it’s not like people are doing it on a wing and a prayer,” Poloz said.

“The real question is: is this sustainable on the debt side? And I’ve always argued it probably was. Of course, that doesn’t mean that the prudential policies shouldn’t be continued.”