UPDATE 1-Canada housing agency expressed worry over high household debt

Wed Mar 4, 2015 5:13pm EST
 
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(Recasts with confirmation of memo)

OTTAWA, March 4 (Reuters) - Canada's federal housing agency on Wednesday confirmed it told the finance ministry last year that it was concerned about high household debt levels and elevated prices in some urban markets.

The Canada Mortgage and Housing Corp (CMHC) made the comments in a confidential May 2014 memorandum in which it called for a "soft landing adjustment" for a robust housing market that has been fueled by low interest rates.

"We are, however, concerned about reduced household flexibility resulting from elevated debt levels as well as diversion of capital into residential housing investments," the memo said.

"Likewise, elevated prices in some urban markets further compound affordability concerns," the memo said.

The CMHC provided a copy of the memo to Reuters after the Blacklock's Reporter online website first reported it.

Canada tightened the rules around government-backed mortgages four times between 2008 and 2012 in a bid to cool the market.

The CMHC memo also said the agency would "look at options for loan-level risk sharing with lenders to reduce risk, increase market discipline and further optimize taxpayer exposure" but details of its proposals were censored.

The CMHC last month softened its forecast for housing starts in 2015, saying it expects the pace of new home construction to gradually moderate in the coming years.

Canada's household debt-to-income ratio hit a record high in the third quarter of 2014. (Reporting by David Ljunggren; Editing by Paul Simao and Lisa Shumaker)