Bank of Canada officials say housing market is not in bubble territory

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By Michael Aynsley

Photo: Bank of Canada/Flickr
In a meeting with the House of Commons finance committee on Tuesday, Canada’s top central bankers said the country’s real estate market is not at risk of a sharp correction despite recent reports of overvaluation. From the Wall Street Journal:

[Bank of Canada senior deputy governor Carolyn Wilkins] said the central bank believed Canada’s housing market was headed for a so-called soft landing, with the exception of Toronto and Vancouver where real-estate activity continues to grow robustly.

[Bank of Canada governor Stephen Poloz] was more direct. “We don’t believe we are in a bubble,” he said.

Back in December, the Bank of Canada itself admitted that the market was overvalued by up to 30 per cent. But as they did back then, the bank said it believed the market was headed for a soft landing as there hasn’t been the sort of highly speculative behavior that is characteristic of an impending crash. From Reuters:

“If we were all buying a second or a third condo with confidence that it was going to rise in price, and sell it to someone else, that would be one of the ingredients you’d expect to see in a true bubble,” Poloz said.

He added that the bank does not see “truly runaway pricing” in the market, while construction has stayed in line with demographic demand.

Poloz also used occasion to defend the bank’s surprise decision in January to cut the key interest rate to 0.75 per cent. From the Globe and Mail:

“On the surface, lower interest rates would be expected to promote more borrowing, which would increase this vulnerability,” he said in his opening statement to the committee. “However, in the near term, lower borrowing rates will actually mitigate this risk, by reducing payments for mortgage holders and giving us more economic growth and employment gains.”

“We believe that the best contribution the Bank can make to lowering financial stability risks through time is to help the economy return to full capacity and stable inflation sooner, rather than later.”

TD Economics predicted at the end of March that the Bank of Canada would maintain the key interest rate of 0.75 per cent until the final quarter of 2016.
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