Canada housing market cools as household debt grows

Mon Oct 15, 2012 1:39pm EDT
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OTTAWA (Reuters) - Canadian home sales fell sharply in September from a year earlier while households pile on debt and business sentiment slumps, according to downbeat data on Monday that suggested a struggle for growth in coming months.

Two reports on what policymakers say are the two biggest dangers to the Canadian economy - the hot housing market and high household debt - indicate a fairly sharp decline in house sales at a time when consumers are increasingly vulnerable to a sudden downturn in the value of their homes or a rise in borrowing costs.

House prices continued rising in September, but at a slower pace than in the past.

Separately, the Bank of Canada's third-quarter survey of businesses showed sentiment weakened on issues such as hiring, investment intentions and sales.

The data feeds into the market view that the central bank should be in no hurry to raise interest rates despite the hawkish language it has used since April.

"Today's numbers are consistent with our expectation that growth in coming quarters will average 2 percent or less, giving the bank little reason to think about acting anytime soon on its tightening bias," said Peter Buchanan, economist at CIBC World Markets.

Canada's export-reliant economy has recovered from the 2008-09 recession and still looks set to grow moderately this year and next.

But the European debt crisis and the spotty U.S. recovery have led to worries that the Canadian recovery will also be thrown off track.

The latest figures show that government efforts to avoid a U.S.-style crash in a housing market that has heated up at an alarming pace since the recession have had some effect.   Continued...

A home is put up for sale in downtown Montreal, July 14, 2009. REUTERS/Shaun Best