Housing market may cool soon, Bank of Canada says

Thu Jun 14, 2012 4:14pm EDT
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By Randall Palmer

OTTAWA (Reuters) - The Bank of Canada warned on Thursday that the country's red-hot housing market could start to cool soon, a prospect that would strain the financial system and put households carrying too much debt under intense pressure.

In its semi-annual Financial System Review, the central bank ranked the housing market and high household debt as the two biggest domestic risks to Canada's financial outlook.

Moody's Investors Service's chief analyst for Canada voiced a similar view on a pullback in housing during an interview on Thursday, while a report by a government housing agency raised red flags as well.

"The continued high level of activity and stretched valuations in some segments of the housing market are of increasing concern," the central bank said in its review.

"Overall, the Governing Council judges that the risks associated with high levels of household debt and a potential correction in the housing market are elevated and have not diminished since December."

Its concerns were partially echoed by Moody's Stephen Hess. The credit analyst told Reuters that housing prices could well fall months ahead, though he expects the impact to be relatively muted.

"It wouldn't be surprising if there was some correction in the housing market," Hess said.

"Will that cause a financial problem, system-wide? In the end we don't think that that risk is very great because of the lending standards that are in the banks, because the economy is still doing relatively well and employment is all right."   Continued...