* Governor Carney sees housing market moderation
* Repeats monetary stimulus will eventually be withdrawn
* Says Europe debt crisis could hit Canada if not resolved
* Analyst sees BoC as more hawkish (Adds details)
By Nicole Mordant
VANCOUVER, June 15 (Reuters) - Canada’s sizzling housing market is on the radar of Bank of Canada Governor Mark Carney, but he issued only verbal warnings to home buyers and banks on Wednesday, rather than signaling any intention to raise interest rates soon.
In a speech in Vancouver, the country’s hottest real estate market, Carney said conditions should moderate as housing demand is eventually dampened by higher borrowing costs and other factors.
Carney warned that Canadians are now as deeply indebted as the Americans and the British, and the proportion of households that are vulnerable to an adverse economic shock is at a nine-year high.
Without using the word “bubble”, he said some trouble spots like Vancouver have characteristics of “financial asset markets” and urged policymakers to be vigilant.
But he gave no clear signal the bank was prepared to raise its benchmark interest rates soon to address housing prices that are now 13 percent above their pre-crisis peak.
“The bank manages policy for the economy as a whole, rather than any specific region or sector. In this context, what does the Bank of Canada expect for housing? In a word: moderation,” Carney said in the text of his speech.
“While supply of new homes should remain relatively flexible, many of the supportive demand forces are now increasingly played out,” he said.
He repeated that the bank’s ultra-low rate of 1.0 percent would rise “eventually”.
“It can be forgotten that we are living in extraordinary times with interest rates that are unusually low,” he said later at a new conference, adding the caution that “rates are not going to stay at these unusually low levels.”
Michael Gregory, senior economist at BMO Capital Markets, said the central bank was limiting itself to “tough talk and other moral suasion morsels” on the housing issue, rather than laying the groundwork for a rate hike.
“These are definitely fighting words. But as long as price stability, on the ground, is not being threatened, the BoC is not going to throw a single tightening punch,” he wrote in a note to clients.
Swaps that trade based on the outlook for the central bank’s key policy rate showed investors slightly trimmed the odds of a rate hike in October or December after Carney spoke. But the speech had little overall impact on interest rate expectations. BOCWATCH
Most primary dealers surveyed by Reuters on May 31 forecast the central bank’s next rate hike will be in September, ending a year-long pause. Toronto-Dominion Bank this week changed its forecast to early 2012. [CA/POLL]
Carney expects economic growth to slow to a modest pace in the short term due to the temporary effects of the Japanese disaster and high energy prices, conceding that second-quarter growth could come in below the bank’s 2 percent forecast.
“Yes it is possible that it could come in below 2 percent, in the 1 percent range.”
The strong Canadian dollar versus its U.S. counterpart continues to be a hurdle for the recovery, he said.
“Our currency has been persistently strong. We have challenges on the competitiveness side and the short-term market movements don’t change that,” he said.
Carney said that while Canada has limited exposure to the European debt crisis, a failure to resolve sovereign debt woes there could have a big impact.
“Europe is an incredibly important economic area, and it is important that this situation is resolved in a timely and effective fashion, or it will have implications for risk markets more broadly and therefore on Canada,” he said in response to a question from the audience.
$1=$0.98 Canadian Additional reporting by Louise Egan and Randall Palmer; editing by Rob Wilson and Peter Galloway