BoC: Paying particular attention to the greater number of households carrying high levels of mortgage debt

The Bank of Canada said on Thursday that it is paying particular attention to the fact that a greater number of Canadian households are carrying high levels of mortgage debt, reported Reuters. 

Additional Takeaways:

Financial system vulnerabilities have become more complex, and risks have become more elevated. 

Vulnerabilities associated with elevated house prices increased further over the past year and evidence implies that the overall proportion of highly indebted households likely surpassed its pre-pandemic peak in 2021. 

It is too early to tell whether the recent decrease in housing resale activity and prices will be temporary or the beginning of a substantial correction. 

Those who entered the housing market over the last year would be more exposed in event of a significant price correction. 

Vulnerabilities associated with elevated household indebtedness and high house prices increase the downside risks to future GDP growth. 

The tightening of monetary policy globally will test the resilience of the financial system and could worsen existing financial vulnerabilities. 

Effects on the real economy could be significant if a trigger event occurs, even as systemically important financial institutions remain resilient. 

Stress-testing exercises showed major banks would suffer significant financial losses but remain resilient in case of a large and persistent economic shock. 

Market participants' confidence in the resilience of the Canadian financial system has hit its highest level reported. 

Publicly traded non-financial businesses are generally in good financial shape and appear well-positioned to handle higher rates. 

Fragile liquidity in fixed-income markets remains an ongoing structural vulnerability while the risk of a quick repricing of assets exposed to climate change has increased. 

New outbreaks of Covid-19 in China and associated lockdowns are another source of concern to the global economy and inflation. 

The risk of a further disorderly repricing of risk remains, which could lead to much tighter financial conditions globally and in Canada.