But demand and supply in British Columbia’s main urban centre has been roughly balanced since the end of 2019, according to the Bank of Canada’s House Price Exuberance Indicator, which combines various strands of housing data to assess whether prices have become “extrapolative,” the central bank’s word for demand explained by an expectation that prices will keep rising, not market fundamentals such as population growth and the rate of housing starts.
Now, authorities in Ontario and Quebec should be most worried about a housing bust. The Greater Toronto Area, which, to be sure, soon caught up to Vancouver as a troubling source of house-price inflation in the aftermath of the Great Recession, continues to exhibit signs of “exuberance,” as do Hamilton and Ottawa, according to the central bank’s analysis.
Extrapolative price pressures “can occur when people fear missing out or expect to make future capital gain from reselling, or both,” Paul Beaudry, a deputy governor at the Bank of Canada, on Nov. 23. “The good news is that the somewhat slower house price growth that we saw over the summer should lower the chances of undesirable extrapolative price dynamics. But some markets still show signs of such expectations.”Article content
The Bank of Canada’s ability to influence housing prices is often overstated. Higher interest rates would deflate demand, but policy-makers would rather avoid harming the prospects of households and businesses to disrupt excessive speculation in individual cities. The central bank has no regulatory power, so all it can do is use its analytical heft to advise politicians and regulators of the situation.
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