Bank of Canada says housing market cooler, still a risk

Wed Jun 26, 2013 3:04pm EDT
 
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By Peter N Henderson

TORONTO (Reuters) - Canada's heated housing market and near-record personal debt is less of a risk than it was a year ago, but the central bank is not letting down its guard just yet, a Bank of Canada official signaled on Wednesday.

"We are seeing a moderation over the last year in both the buildup of household indebtedness and also the related imbalances in the housing market," Bank of Canada Deputy Governor Timothy Lane said in response to an audience question following a speech in Toronto.

"At the same time ... that's not to say that the risk has suddenly disappeared, and it's still a risk that we're watching very closely," he said.

Canada's housing market slowed dramatically in mid-2012 after the government tightened mortgage lending rules to head off a housing bubble. It was the fourth such move in five years. But the market has rebounded in recent months.

Canadians took on a record high debt load during the post-recession housing boom, taking advantage of five years of ultra-low rates. The latest revised data from Statistics Canada showed the ratio of household debt to income fell slightly to 161.8 percent in the first quarter from a record 162.8 percent in the third quarter of last year.

SHADOW BANKING A WORRY

A related risk, highlighted by Lane in his speech, is the rapid increase in the securitization of government-backed mortgages - an activity that has doubled in the past five years and which the central bank considers to be part of the unregulated "shadow banking" sector.

Securitization is the process by which assets such as mortgages are packaged into bonds or other debt instruments that can then be traded.   Continued...

 
Buildings are seen in the financial district in Toronto, January 28, 2013. REUTERS/Mark Blinch