Bank of Canada won’t intervene in housing market, waits for soft landing

Business News Network, December 10, 2014 - Bank of Canada governor Stephen Poloz insists the central bank will not move to cool the housing market, even though the financial system review warned house prices may be overvalued by as much as 30 percent.

“The Bank of Canada sees itself well back from the frontline,” said Poloz. He says a soft landing remains elusive, but believes restraint from lenders and borrowers, supervision from the financial system regulator and adjustments to the mortgage market should be the primary tools to keep valuations in check if housing prices rise to dangerous levels.

“We never expected that housing imbalances would simply go away by themselves. What we expected was that the strengthening economy increases employment, raising incomes, which would make [current home prices] more normal,” said Poloz. “We still believe that process is in train and we’ve had our first encouraging signs that’s true.”

Earlier this month, Poloz maintained the Bank of Canada’s trend-setting interest rate at one percent, where it has been since September 2010. The low rate has encouraged Canadians to accumulate debt and stimulated the housing market.

According to Re/Max, the average selling price in Canada will rise 2.5 percent from 2014 to $416,300, with more affordable areas such as Moncton and Windsor expected to see the biggest jump in prices. However, Poloz’s soft landing scenario may be playing out on a localized basis with slower growth expected in some of the country’s hot spots.

“If you live in Montreal or Ottawa, you’re experiencing a soft landing. The issue of course is Calgary, Vancouver and Toronto, and I have a feeling Calgary will not be on this list a year from now,” Benjamin Tal, deputy chief economist at CIBC World Markets, tells BNN. "When prices of oil go down house prices there go down. We’ve seen it before. We’ll see it again. You will achieve more than a soft landing in Calgary I believe.”

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