News & Resources

Three Cities Have Exuberant Home Prices: BoC

May 31, 2021
4 mins
An aerial view of Toronto

Bank of Canada (BoC) researchers have developed a new way to detect over-bullish home price expectations across Canadian cities. They call it the House Price Exuberance Indicator (HPEI).

We won't bore you with the nitty-gritty on how it works (partly because BoC authors don't explain it very well...guess they don't expect average people to read this stuff). But essentially, the HPEI measures when homes are outpacing (overpriced relative to) demand-side fundamentals like:

  • disposable income per capita
  • population
  • real effective mortgage rates

It also factors in behavioural expectations.


As of the first quarter of 2021, the only major cities that were "exuberant" were Toronto, Hamilton and Montreal (Ottawa was close).

Maybe the Bank of Canada should try measuring cottage country. Perhaps they'll find some exuberance there with percentage price gains up in the triple-digits in some regions.

Bottom line: The Bank's fancy new indicator has some predictive properties. The problem is, it's hard to understand the dang thing. It's also not updated frequently enough (only quarterly), making it hard to use it as a top/bottom indicator.

We'll keep an eye on it for fun, though. In the meantime, if you own a house in Toronto, Hamilton or Montreal, the Bank suggests you should probably get a tinge nervous.

At the same time, you can probably take solace in the fact that almost no one will even understand this indicator.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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