Bank of Canada Gov. Stephen Poloz including "home prices" on his list of risk factors that "keep me up at night", which he shared with an audience of economists at the prestigious Canadian Club earlier this year. But Poloz's words of caution have not stopped housing costs for Canadians form climbing to precarious new highs. Signs of this stress are already apparent - for example, in Vancouver, where a chasm between bids and asks has caused the local housing market to grind to a halt.
The latest warning about an impending implosion in the Canadian housing bubble comes courtesy of a quarterly RBC report, which found that the aggregate costs of homeownership in Canada, a category that includes mortgage fees, interest, property taxes and utilities and other miscellaneous costs, have reached their highest levels since 1990.
The most alarming aspect of this trend, according to the bank, is that rising mortgage costs, not home prices, have been the biggest contributing factor over the past year, with mortgage rates rising in each of the last four quarters.
Rising mortgage rates have, of course, been spurred by the BoC's rate hikes. Today, the average Canadian would need to spent roughly 54% of their income to buy a home. That's up sharply from 43.2% three years ago.
But in Canada's most unaffordable housing markets, these figures are considerably higher.
"From overheating to correction to the onset of recovery, we’ve seen pretty much everything in the past three years in Canada’s housing market," economists at the Toronto-based bank said in the report. "Yet an eye-watering loss of affordability has been a constant."
In Vancouver, Toronto and even Victoria, RBC's index of home prices relative to average income has reached 88%, 76% and 65%, respectively. The bank's data includes costs for condos and detached single-family homes.
Courtesy of Bloomberg
And with the BoC widely expected to continue raising interest rates...
"We expect the Bank of Canada to proceed with further rate hikes that will raise its overnight rate from 1.50 percent currently to 2.25 percent in the first half of 2019," the report said. "This will keep mortgage rates under upward pressure and boost ownership costs even more across Canada in the period ahead."
...its analysts have warned that a momentous housing implosion looks increasingly likely. Adding a dash of irony to this scenario, the BoC has expressed caution about the housing bubble and cited raising interest rates as a necessary measure to combat it.
Read the whole report below: