OTTAWA Nov 25 Canada's housing market still
needs to be closely monitored for signs of overheating but the
country's banking regulator has no immediate plans to change its
rules to help cool the market, its top executive said on Monday.
Housing prices and mortgage debt in Canada have soared in
recent years due to record-low borrowing costs, a trend many
consider dangerous because of the risk it could end in a
But the housing market cooled last year after the federal
government tightened mortgage rules. Analysts have said previous
measures taken by Canada's banking regulator, the Office of the
Superintendent of Financial Institutions, have also had an
"Nevertheless, this is a market that continues to bear very
close watching," said Julie Dickson, head of OSFI, in a speech
to a conference of mortgage professionals in Toronto.
Dickson cited reports by the International Monetary Fund and
the Organisation of Economic Co-operation and Development, among
others, that warn that house prices in Canada are significantly
overvalued and heavily indebted households could be in trouble
if the economy took a sudden turn for the worse.
"While not all observers agreed with the extent of the OECD
and IMF comments, the continued strength of housing prices
across many Canadian cities in the second half of 2013 is
undeniable," she said.
OSFI does not reveal its own views on the future of the
housing market for fear of influencing banks to either curb or
expand lending in a way that might either inflate a bubble or
cause an excessive slowdown.
Dickson's main message to an audience of bankers and
mortgage brokers was to not rest on their laurels. OSFI's bank
stress tests may have produced comforting results, she said, but
the regulator keeps a close watch on bank capital levels, she
Likewise, low rates of mortgage delinquency and high
borrower credit scores can be deceiving and can slide rapidly if
there is a shock to the economy.
"So OSFI encourages financial institutions to pay
considerable attention to the quality of borrowers, both in the
current environment and potential future environments."
So far, the consensus view of economists has been that there
will be a 'soft landing' of the housing market. Finance Minister
Jim Flaherty and Bank of Canada Governor Stephen Poloz appear to
be in that camp as well.
Flaherty has tightened mortgage lending rules four times
since 2008. The latest measures in mid-2012 led to a sharp
slowdown, but the market has gained new momentum this year.
Flaherty won't rule out further measures but sees no need to
act at the moment. Likewise, OSFI said earlier this year it saw
no need to make more changes to its mortgage lending guidance
but left the door open to that in the future.
OSFI will be releasing guidelines for mortgage insurers by
the end of March 2014, Dickson said.