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Canada's housing market at higher risk of correction due to extrapolative expectations - Bank of Canada

Kitco News

OTTAWA, Nov 23 (Reuters) - An influx of investors into Canada's housing market has likely helped fuel extrapolative expectations on price gains and that could expose the market to a higher chance of correction, a deputy governor of the Bank of Canada said on Tuesday.

Paul Beaudry, in a virtual speech to a provincial regulator, also said Canada's main financial system vulnerabilities - housing market imbalances and high levels of household debt - have been intensified by the pandemic.

"A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year. In such a case, expectations of future price increases can become self-fulfilling, at least for a while," he said.

"That can expose the market to a higher chance of a correction," he said. "If one occurs, the damage can spread far beyond the investors."

Beaudry noted that "somewhat slower" house price growth over the summer should lower the chances of undesirable extrapolative price dynamics, but major markets are still at risk.

(Reporting by Julie Gordon and David Ljunggren)

((Reuters Ottawa bureau, +1 647 480 7921;

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