Cen­tral bank Gov­er­nor Mark Car­ney says there is ‘some con­cern’ but for now boom is fac­tor in eco­nomic rebound

Kevin Carmichael – Globe and Mail

Bank of Canada Gov­er­nor Mark Car­ney says he has “some con­cern” that the surge in the hous­ing mar­ket is unsus­tain­able, although for now the boom in home buy­ing remains a sig­nif­i­cant fac­tor in Canada’s eco­nomic rebound.

“We do have some con­cerns about it,” Mr. Car­ney said at a press con­fer­ence Thurs­day. “Obvi­ously, con­sumer bor­row­ing can­not not grow faster than the econ­omy forever.”

Most Cana­dian hous­ing indi­ca­tors are much stronger than most econ­o­mists imag­ined they would be so early into the rebound from Canada’s first reces­sion since the early 1990s. For exam­ple, the aver­age price of an exist­ing home was $331,602 in Sep­tem­ber, a 13.6 per cent increase from the same month a year ago, accord­ing to the Cana­dian Real Estate Association.

In some ways, that’s exactly what the cen­tral bank and econ­o­mists hoped would hap­pen when pol­icy mak­ers dropped the bench­mark lend­ing rate to a record low of 0.25 per cent in April to fight the reces­sion. Still, the boom comes with echoes of the hous­ing bub­ble in the United States, which trig­gered the finan­cial cri­sis when it burst.

Mr. Car­ney was care­ful not to over­state the risk.

The cur­rent demand for houses is explained by pur­chases that were put off dur­ing the worst of the reces­sion and rad­i­cally improved afford­abil­ity. The cen­tral bank expects the hous­ing mar­ket to remain strong through next year, and cool off in 2011.

Nev­er­the­less, Mr. Car­ney said the cen­tral bank is study­ing the issue, and will have more to say when it releases its review of the finan­cial sys­tem in Decem­ber. In par­tic­u­lar, pol­icy mak­ers will break down the home buy­ing by income groups to see if peo­ple might be tak­ing out loans they won’t be able to afford as inter­est rates rise.

“We are watch­ing the growth in con­sumer credit in Canada,” Mr. Car­ney said. “We expect pru­dence from lenders. We expect, and we have con­fi­dence in, pru­dence from Cana­di­ans. We remind peo­ple that bor­row­ing is for the period you are going to bor­row, not just for the moment you take out the loan.”

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