* Housing overvalued by 10 pct, signs of overbuilding
* Household debt also a concern; more gov't measures may be needed
* Sees Bank of Canada rate hike in late 2013
* Says federal budget set for balance; provincial finances bumpier
By Louise Egan
OTTAWA, Feb 14 (Reuters) - Canadian housing prices were still about 10 percent overvalued at the end of 2012, the IMF said on Thursday, and it warned that authorities may have to intervene a fifth time in the mortgage market if personal debt levels rise further.
The International Monetary Fund, in its annual report on Canada, also said the country's currency was between 5 and 15 percent higher than warranted by long-term economic fundamentals, lifted in part by commodity prices and the country's safe-haven status for investors.
The Washington-based lender acknowledged that government measures since 2008 - and most recently last July - to cool overheated mortgage borrowing and house prices have helped prevent a U.S.-style housing bubble.
But residential prices and construction are both still excessive, according to its assessment based on meetings with Canadian officials from Dec. 3-18.
"Our analysis suggests an overvaluation in real terms of about 10 percent at a national level, although with significant variations across provinces," said Roberto Cardarelli, IMF mission chief for Canada, in comments provided as a complement to the technical report.
Since the Washington-based lender conducted its study, there have been more signs of moderation in the housing market. Home prices grew at the slowest pace in three years in December year-on-year and housing starts fell more steeply than expected in January.
Like Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty, the IMF worries that highly indebted Canadians make the country more vulnerable to an external shock that could lead to job losses and bankruptcies.
While it expects a soft landing, it urged Ottawa to be ready to intervene again if the household debt-to-income ratio rises further from already record highs.
"These measures could include higher down-payment requirements, lower caps on debt-service-to-income ratios, and tighter loan-to-value ratios on refinancing," it suggested.
The central bank, for its part, should not use interest rate hikes to curb household borrowing except as a very last resort, the IMF said. It urged the Bank of Canada to keep its benchmark rate on hold at 1.0 percent until growth regains momentum, which it expects in late 2013.
The IMF report's outlook is broadly in line with that of the government and central bank, which see growth picking up in the second half of this year after a weaker-than-expected 2012.
Wading into a controversial domestic debate, the report states that the sharp appreciation of the Canadian dollar and increased competition from China as a trade competitor "contributed to the decline of Canada's manufacturing market share in the United States over the last decade."
It noted that the Canadian authorities "only partially agreed" with this view, saying the decline of manufacturing was a trend among all advanced economies. The main opposition party, the New Democrats, has clashed with the ruling Conservatives on this issue, contending that the strong currency, which it says is caused by heavy reliance on oil sands development, has hammered manufacturing jobs.
The federal government is on track to balance its budget by 2015-16, but the fiscal outlook for some of the largest provinces such as Ontario and Quebec is less certain, the IMF said. A priority in the medium term will be to contain healthcare costs, a provincial responsibility, it said.
The IMF urged the federal government to consider two new approaches to fiscal planning, but policy makers appeared reluctant to agree, according to the report.
First, it suggested Ottawa publish a "fiscal sustainability report" every 3-5 years which would review progress by each level of government - federal, provincial, territorial and municipal on managing debt and deficits.
Secondly, a variety of measures could be adopted to soften the impact of volatile prices for oil and other commodities on the economy and on government budgets. For example, the government could put aside savings during commodity booms for use in leaner times, and exclude commodities from some of its fiscal indicators to produce more accurate projections.