Bank of Canada Cites Household Debt, Real-Estate Prices as Potential Risks

Rising Canadian household debt and frothy real-estate markets are the main concerns for financial stability in the country, with conditions exacerbated in the past six months by significant house-price gains in Toronto and the surrounding area, the Bank of Canada said Thursday.

The central bank judges there is a moderate risk of a significant house-price correction in both Toronto and Vancouver, which could lead to limited financial stress, it said in its semiannual Financial System Review.

Overall, the bank's review indicated Canada's financial system is "relatively resilient" compared with other advanced economies, and added there should be no concern of a U.S.-style housing crisis witnessed last decade. Tools introduced in the province of Ontario in April, most notably a tax on foreign house buyers, may already be playing a role in cooling Toronto housing, the bank said.

"The financial system weaknesses and exposures that helped transform a house-price correction into a large and persistent rise in unemployment during the 2007-09 crisis are not present in Canada," the central bank said. It said a risk associated with a prolonged slump in commodity prices has dissipated, and the economy is gradually improving.

The Bank of Canada's semiannual review assesses vulnerabilities in the financial system, and identifies potential risks to financial stability that may not necessarily be triggered. The central bank last published its review in December.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 08, 2017 11:27 ET (15:27 GMT)