WRAPUP 1-Cooling Canada's housing market will take time -central bank

Thu Jun 13, 2013 1:16pm EDT
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* BoC says household debt, housing market still pose risks

* Bank says imbalances will be slow to unwind

* Says euro zone crisis the No. 1 risk to financial system

* Canadian shadow banking merits closer monitoring

By Louise Egan and Randall Palmer

OTTAWA, June 13 (Reuters) - Canada's housing market is stabilizing after the heated conditions of the past several years but progress will be slow, the Bank of Canada said on Thursday as it also warned that record-high household debt levels would persist through this year.

The bank added in a semi-annual report that the risks to the economy posed by debt and the housing market remain unchanged at "elevated", even though the situation appears to have improved over the past six months.

"The level of indebtedness is still elevated, and the bank's stress test simulations suggest that households are vulnerable to adverse economic shocks," the bank said in its Financial System Review.

"These imbalances, which built up over many years, will take some time to correct. While a gradual unwinding of imbalances is expected, there is a risk of a sharper correction," the bank said in the first such report to be published under its new governor, Stephen Poloz.   Continued...