No housing crisis here: Poloz

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The Governor of the Bank of Canada, Stephen Poloz, assured Canadians there is no risk of a U.S.-style housing crisis, despite record-high prices and sales.

The Canadian housing market has been bolstered by some of the lowest interest rates on record, but Poloz believes what we are seeing is "very different from what we saw in the United States just before the (2008 financial) crisis."

Speaking at a news conference following a speech that centred on the necessity of low interest rates in supporting an economy that is still in recovery, Poloz defended the policy against naysayers who warn that continued low rates could over-inflate the economy by fuelling debt levels.

“The consequences of an upside risk would be more manageable than those associated with a downside risk,” Poloz said, while also noting that the excess Canadian household debt levels will take two years to reach optimal levels.

Still, the housing situation is being watched closely by bears and bulls alike, especially in Toronto where condo sales continue to boom despite worries of an over-saturated market.

 “Sales this past summer reaffirm that the new condo market in Toronto is on track for one if its best years on record, Shaun Hildebrand, senior vice president of Urbanation said. “There is still quite a bit of pent-up demand that came out of the slowdown last year.

“Should market confidence continue to hold in spite of the recent turmoil in financial markets, this sales momentum will carry into the final months of 2014 and early 2015.”
  • Don on 2014-11-05 5:40:43 PM

    I wonder if Steve wants us to believe in Leprecon too.

  • Jane on 2014-11-05 5:52:23 PM

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    Last updated Wednesday, Nov. 05 2014, 10:59 AM EST

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    Lawrence Schembri isn’t the first official to warn how dangerous this could be.

    But his paper, published today, is notable in that it comes from a deputy governor of the Bank of Canada, which only recently again cited the threats from the massive debt loads of Canadian households.

    Mr. Schembri stresses that the system is sound, as long as there’s no “severe” shock that would drive up unemployment, and that the “imbalances” among consumers will probably ease as mortgage rates inevitably rise.

    Nonetheless, he writes in the National Institute Economic Review, things have to change given, among other things, debt-to-income levels that have been at or near record levels in Canada.

    “These post-crisis imbalances have accelerated a trend in which the government has become more exposed to the Canadian housing market via its guarantees on mortgage insurance mortgage securitization,” Mr. Schembri writes in the journal published by Britain’s National Institute of Economic and Social Research.

    “This trend is not sustainable,” he adds.

    “The housing finance framework needs to be adjusted and strengthened by rebalancing the risk exposures among the participants in this market.”

    Canada Mortgage and Housing Corp., the government insurer, is, of course, a key player here, while the mortgage market is dominated by the big banks.

    The government has taken several steps to cool the market over the past several years.

    “However, more work is needed to determine the appropriate adjustments in the pricing of, and quantitative restrictions on, mortgage insurance and securitization to create the right incentives, leverage market forces and achieve a sustainable rebalancing in risk exposures,” Mr. Schembri says.

    “In particular, measures should be considered to develop a liquid private-label securitization market in Canada.”

    Under the former governor, Mark Carney, the Bank of Canada warned frequently of the dangers to consumers, even threatening a rate hike should households not take steps.

    The current governor, Stephen Poloz, has dropped that, though the central bank’s latest monetary policy report again highlighted the risks.

    Indeed, the Bank of Canada had, until recently, said the country’s housing market appeared headed for a soft landing.

    But in its latest missive, it said the eastern Canadian market was looking that way, while Ontario, Alberta and British Columbia were still running strong.

    For the record, the central bank wasn’t saying those markets were in danger of crashing, but observers took it as a warning where Toronto, Calgary and Vancouver were concerned.

    And Mr. Schembri returns to this theme today.

    “Much of this strength in house-price growth is coming from the greater Vancouver and Toronto areas – which are popular destinations for immigrants and also, based on anecdotal evidence, for foreign investors – and from Calgary, which is benefiting from strong income growth due to high energy prices and elevated levels of economic activity,” he writes.

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