Home market stabilizing: Carney
Points to federal mortgage rules, central bank policy
TORONTO — Two prominent voices made the case Tuesday that Canada’s housing market is undergoing a soft landing and that a “sustainable” path is around the corner.
In a speech to the CFA Society in Toronto, Bank of Canada governor Mark Carney said new mortgage rules introduced by the federal government and a clear “tightening bias” from the central bank are working successfully together to cool Canada’s red-hot housing market.
“I wouldn’t say mission accomplished … but a more sustainable housing situation in Canada is within sight,” he said.
That observation came as another optimistic view of the housing market was presented by Scotiabank’s senior economist, Adrienne Warren. She predicted that Canada’s housing market was “shifting toward a more sustainable path.”
“Canada’s housing market so far appears to have achieved a soft landing, with cooler but fairly steady sales and pricing through the fall,” she said.
There have been persistent warnings — from both the Bank of Canada and from many economists — about the risk Canada’s heated housing market poses to the economy this year.
But in his speech, Carney said he is seeing “encouraging” signs in the housing market.
Carney said there is already evidence that Canadian consumers, who have one of the highest debt-toincome ratios in the world, are taking warnings of looming rate hikes seriously. As evidence, he pointed to the mortgage market, in which he says the share of fixedrate mortgages in Canada has almost doubled to 90 per cent this year, while variablerate mortgages have seen a corresponding decline. Consumers tend to hover toward variable-rate mortgages when they expect interest rates to be low for a very long time.
He has been sounding the alarm on household debt for the past year, especially given that household debtto-income levels have hit the same unsustainable levels that U.S. and British consumers experienced before the financial crisis.
Warren pointed out that while Canada’s housing market appears to be positioning itself into a soft landing, specific markets are set to fare better than others. She said she expects demand to be soft in Vancouver and To- ronto, the former of which is now experiencing a significant drop in home prices and sales. Meanwhile, markets in Alberta and Saskatchewan, which continue to benefit from a resource-fuelled economic boom, will see ongoing strength in prices due to a growing population.
“However, with the Canadian economy continuing to post healthy job growth, and sellers proving responsive to the underlying shift in market conditions, a sharp decline in prices nationally is unlikely,” she said.
Although Warren calls the current housing situation an “orderly slowdown,” she cautioned there are still risks.
“There’s a lot of uncertainty out there in terms of the global economic outlook, whether it’s the U.S. fiscal cliff or the eurozone problems, that can have a significant impact on the Canadian economy and Canadian hiring in 2013,” she said in an interview.