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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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