And Montreal might now be the city most at risk of a downturn in the real-estate market, as it’s square on the Bank of Canada’s heat map went from red over the first half of the year to an even darker red in the third quarter.
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, said in a speech on Nov.
Higher interest rates would deflate demand, but policy-makers would rather avoid harming the prospects of households and businesses across the country to disrupt excessive speculation in individual cities.
In May, when the central bank last reviewed the financial system, it singled out troublesome local markets for the first time, a decision that should make it harder for provincial and municipal politicians to ignore the threat.
“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” Beaudry said.
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