Reuters logo
Bank of Canada optimism premature as risk of housing boom persists
November 29, 2017 / 7:56 PM / 17 days ago

Bank of Canada optimism premature as risk of housing boom persists

OTTAWA, Nov 29 (Reuters) - The Bank of Canada is breathing a sigh of relief that Canada’s housing boom and the hints of a bust in Toronto are stabilizing, but the optimism is premature, analysts said on Wednesday.

Central bank Governor Stephen Poloz said Tuesday a stronger economy and good policymaking are bringing about “a gradual easing” of vulnerabilities in housing and household debt, and the trend should continue.

But with new mortgage tightening rules bringing fresh uncertainty and persistent demand reviving the Toronto and Vancouver markets, the risks of Canada’s precarious housing market have not gone away

“This is either a pause in the bubble and inflation is going to resume into even more stratospheric levels, or this is the start of a hard landing,” said Hilliard MacBeth, portfolio manager at RichardsonGMP and author of “When the Bubble Bursts: Surviving the Canadian Real Estate Crash.”

The central bank said new mortgage lending rules from financial regulator OSFI due to take effect in January could disqualify about 10 percent of buyers. That, plus the cumulative effect of previous mortgage tightening, two 2017 interest rate hikes and a strong economy are mitigating housing risk, Poloz said.

But with Toronto activity showing early signs of stabilizing after a dramatic spring cooling and Vancouver bouncing back, demand may re-emerge more quickly than expected.

“There are no quick fixes. The medicine OSFI’s prescribed won’t cure the patient. It may alleviate some symptoms at federally regulated lenders, but the side effects are serious and too readily dismissed by OSFI and the Bank of Canada,” said Rob McLister, founder of mortgage rate comparison website RateSpy.com.

Mortgage rates are turning lower already after the bank cooled expectations for further rate hikes, providing fresh impetus for a bubble.

The mortgage industry has warned that the OSFI stress tests could douse the market. However, Royal Bank of Canada economist Josh Nye said some lenders are already qualifying borrowers under the new tighter conditions, so the impact may not be as sharp as expected. Further, borrowers may simply find unregulated lenders willing to keep the party going.

Realtors also expect the market to bounce back after what could be a rocky start to 2018, said Christopher Alexander, a regional director at Re/Max.

“Canada has tightened the mortgage rules several times over the last several years, and each time, if anything, there is a little pause and then ... things take off again,” said Alexander. “Every time someone has said (the market will cool) over the last five years, they’ve ended up getting burned.” (Reporting by Andrea Hopkins; editing by Jonathan Oatis)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below