Canada housing moving in right direction: BoC's Murray

Tue Nov 27, 2012 3:22pm EST
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By Jonathan Spicer

NEW YORK (Reuters) - Canada's heated housing market appears to be cooling as desired, a senior Bank of Canada official said on Tuesday, although he noted that housing starts remain unusually high.

Housing prices and construction in Canada roared higher in 2011 amid low interest rates, sparking fears of a U.S.-style bubble. The market started to slow after the government tightened rules on mortgage lending in July, and policy makers hope to see a gradual softening rather than a crash.

"It's still early days. But we're certainly seeing evidence of movement and acceleration in the right direction," Murray told a business audience after giving a speech in New York.

"Some sort of smooth transition, at least on the housing side, is what we're looking for," he said.

He said the evidence on housing expenditures was "to a degree encouraging" but cautioned that housing starts were still higher than would be warranted by demographic trends.

Canadian home prices dipped in October from September and year-over-year price gains slowed for the 11th straight month, according to the latest in a string of data showing the market is losing momentum.

But the central bank is mostly concerned about the record-high levels of personal debt that accompanied the housing boom and will likely take longer to subside.

The bank, which has kept its key interest rate frozen at 1 percent for the past two years, has signaled in recent weeks that it could resort to increasing interest rates to bring down household debt if other measures failed, straying temporarily from its traditional inflation target if necessary.   Continued...