It's no surprise that Canada's housing market has been on fire lately, with historic low mortgage rates continuing to attract buyers. Though with demand continually outpacing supply and home prices steadily increasing, there are now early signs of overheating in Canada's housing market. (No kidding.)

Despite these signs of overheating, however, Bank of Canada Governor Tiff Macklem says so far there are no plans to raise interest rates until the economy and employment are back on track following the declines caused by COVID-19.

Earlier this week, Macklem spoke remotely to the Calgary and Edmonton chambers of commerce and acknowledged that there were risks that “housing prices could get stretched and households could get stretched” with interest rates -- which currently sit at a record-low of 0.25% -- are expected to remain low until 2023 to support the economy through the pandemic recovery.

"The economy is weak, we're just coming out of the second wave. I think we need the support, we need the growth we can get," said Macklem before adding that the central bank is surprised by the "extent and the strength" of the rebound in the housing market.

"We're well past working off the catch-up... the first pent-up demand coming out of the first lockdown," added Macklem.

READ: Canadian Housing Market Already On Pace to Have Record Year in 2021: RBC

The rebound is being driven by the sales of single-family homes outside of large city centres, as Canadian homebuyers continue to look for more space as they work from home.

"We're all spending more time at home, people are working at home, they want more space, they don't have to commute, and they figure their employers are probably going to be more flexible about the need to go into work every day, so they're moving out of the downtown core," said Macklem, adding, "they're getting more space and that's driving up prices particularly outside of our largest cities for single-family homes. "

As such, Macklem said there are now early signs of what he called “excess exuberance,” though, it's not like what was felt in 2016 and 2017 when multiple government measures were introduced to cool down the housing market.

While he believes the situation should be monitored “very closely,” Macklem said that, at this time, the Bank of Canada is not recommending any new measures for the housing market.

“What we get worried about is when we start to see extrapolated expectations when we start to see people expecting the kind of unsustainable price increases we’ve seen recently go on indefinitely,” added Macklem.

In the meantime, Macklem says the bank will keep an eye on debt levels, as mortgage debt rises as households pay down other debt like credit cards and personal loans.

Real Estate News