UPDATE 1-Risks from housing markets' strength contained -Bank of Canada

Tue Aug 25, 2015 12:51pm EDT
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(Adds quotes from Schembri, details of speech, background)

By Leah Schnurr

KINGSTON, Ontario Aug 25 (Reuters) - The risks that booming housing markets pose to Canada and other similar economies are being well managed by credible and effective macroprudential policies, Bank of Canada Deputy Governor Lawrence Schembri said on Tuesday.

Schembri, who looked at Canada, Australia, Norway, Sweden and New Zealand, said low interest rates in the wake of the 2008 recession had helped boost the housing sector.

The Bank of Canada and the federal government have long fretted that the hot housing market and record levels of personal indebtedness could spark a crisis in Canada, especially if interest rates rise.

"The resulting strength in the housing market has increased household imbalances, but the risks stemming from these vulnerabilities have been well managed by complementary macroprudential policies," he said in a speech.

"The experience in these countries therefore suggests that macroprudential policies that address structural weaknesses in the regulatory framework are best suited for mitigating such financial vulnerabilities," he continued.

In Canada, authorities tightened mortgage rules four times from 2008 to 2012, cutting the maximum amortization of insured mortgages and boosting the amount that people had to put down as a deposit for a new house.

"Recent evidence suggests that these measures have resulted in higher average credit scores, which have improved the quality of mortgage borrowing," said Schembri.   Continued...