NEWS

Stephen Poloz says debt and house prices remain biggest risk to economy

12/10/2014 11:08 EST | Updated 02/09/2015 05:59 EST
Consumer debt loads and inflated house prices are two big risks to the economy, the Bank of Canada warned in its semi-annual Financial System Review on Wednesday.

The central bank report outlines the bank's thinking on what some of the biggest risks to Canada's economy are. On the whole, the bank says the risks of a major shock to the country's financial system haven't gotten worse in the six months since the bank's last report. 

But it's still worried about two big issues: household debt, and what it calls "imbalances in the housing market."

The bank says it's about 95 per cent sure that house prices have been overvalued by an average of about 10 per cent since 2007. That's based on a new forecasting model the bank says it created, which incorporates existing data from private banks and other government institutions.

Based on what that model is suggesting, the bank reckons house prices today could be as much as 30 per cent overvalued today. 

"The large degree of uncertainty inherent in the model suggests a wide range of estimated overvaluation, running from 10 to 30 per cent," the bank said.

More to come


 

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