Bank of Canada Says Household Debt Vulnerabilities Are Easing

Bloomberg.com — Risks to Canada’s financial system from elevated consumer debt and house prices are easing, the central bank said, while the “sheer size” of what families owe means the danger will persist for some time.

Stricter mortgage rules including a broader stress test that began in January appear to deterring some of the riskiest borrowers, the Bank of Canada said in a Financial System Review. Price gains for single-family homes in Vancouver and Toronto have also slowed “markedly,” the report said.

“The two main vulnerabilities we have been watching closely are showing continued signs of easing, which is encouraging,” Governor Stephen Poloz said in a statement Thursday from Ottawa. “Higher interest rates and the changes to the mortgage guidelines have reduced credit growth and improved the quality of new lending.”

Canada’s economy has been powered for the last decade by debt-fueled consumer spending, leading to a surge in home prices, particularly in Toronto and Vancouver. That’s led to concerns about the risks of high debt levels in an environment where interest rates are rising.

Poloz has raised rates three times since last summer and investors predict the 1.25 percent benchmark will climb again at the next meeting in July. […]