Further correction in the cards for one market

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The Bank of Canada released its biannual Financial System Review (FSR) Wednesday, and despite its optimism about the resilience of the financial system, household indebtedness remains a concern.

“We judge that the vulnerability associated with household indebtedness is edging higher, and the overall risk to financial stability in Canada is slightly higher than it was at the time of our December FSR,” Governor Stephen Poloz said in an official release.

According to the Bank of Canada, the biggest risk to the Canadian economy continues to be declines in income and employment, which would hinder households’ ability to service debt and lead to a correction in housing prices.

“The oil price shock has increased the risk to financial stability, the FSR states, by delaying improvements to incomes and economic growth and impacting the housing markets of oil-producing regions,” the Bank wrote in the release. “However, the decline in oil prices alone is unlikely to trigger a material risk to the system as a whole. The Bank continues to expect the imbalances in the household sector and housing market to ease as the economy improves.”

Many Alberta brokers have already felt the effects of the sagging oil prices, with home sales dropping in many markets. Some, however, have braced for a downturn that hasn’t yet materialized.

“I’m in southern Alberta and we have anticipated a slowdown in business but we have not yet seen that,” Robert May of Verico Canada First Mortgage told MortgageBrokerNews.ca. “We aren’t completely dependent on the oil and gas sector, but we wonder what the long-term effects will be on the entire province.”
 

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