Broker Economist on Central Bank housing concerns

by |
The Bank of Canada whispered its worry about certain real estate markets in its recent rate announcement, according to one leading economist – but should The Bank be concerned?

“What I highlighted … is the final paragraph of the report, which alluded to Canadian household debt vulnerability which is bank-speak for they are still worrying about the housing market,” Dr. Sherry Cooper, chief economist for Dominion Lending Centres, told “It’s nothing new; they’ve been saying this for years now.

“But as the prices in Vancouver have risen exponentially, there has been widening concern and the media has put the spotlight on this.”

The Bank of Canada said in its overnight rate announcement Monday that household vulnerabilities have become an increasing concern. It also mentioned divergences among certain markets.

Those two statements, when coupled together, allude to concern about Toronto and Vancouver’s housing markets, according to Cooper.

Much of that concern surrounds the impact foreign investors are having on Canada’s two hottest markets. It’s an area Cooper is currently researching.

“I’m working on a research paper on the Chinese inflow of capital in Canadian real estate and whether it is sustainable. And the bottom line is yes, it is sustainable, unless barring some sort of cataclysm,” she said. “None of us know what the net inflow is in Canadian real estate markets, either Vancouver or Toronto, but everyone is clear that it’s meaningful.

“In Vancouver, especially, it’s visible. You can’t walk through the Vancouver airport without seeing Chinese signs everywhere.”

However, Cooper argues the concern around foreign investment is overblown.

“I think it’s an important issue; you know U.S. hedge funds and hedge funds around the world have been shorting Canadian bank stocks thinking this was a bubble that’s going to burst and it’s a big negative for the Canadian banks … [but] I don’t believe that’s the case,” Cooper said. “They are misinformed about how different the housing structure is in Canada, how different the banking regulations are in Canada.”
  • Roy Tal on 2016-05-26 9:36:08 PM

    I think foreign investors are definitely a factor, but so are the weak canadian dollar, the low interest rates, and the strong economies and images of Toronto and Vancouver. That coupled with short in supply all cause a bubble. The questions is how much longer can it go? 2 years? 5 years? 6 months?

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions