Analysis: Low rate pledge seen recharging Canada's housing boom

Thu Oct 24, 2013 5:09pm EDT
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By Andrea Hopkins

TORONTO (Reuters) - The Bank of Canada's surprising signal on Wednesday that it will not raise interest rates any time soon will lift the housing market and give indebted households breathing room, but it leaves many apprehensive there will be a hard reckoning.

Canada sidestepped the worst of the financial crisis because it avoided the real estate excesses of its U.S. neighbor, and a post-recession housing boom helped it recover more quickly than its Group of Seven peers.

But the housing market began to cool last year after the country's Conservative government, worried about a potential property bubble, tightened mortgage rules.

The prospect of lower-for-longer interest rates, needed to help a struggling economy, has revived those bubble fears.

"This is a double-edged sword," said Laurie Campbell, chief executive at Credit Canada, a nonprofit credit counseling agency that is funded by banks and other lenders.

"It's going to keep more home buyers in the market, but ... I worry. Because, fine, interest rates are going to be stable and (home buyers) can get a good rate, but are they getting into the market only because of that? Debt is at record levels, and we know consumers are biting off more than they can chew financially, so does this lead to more problems down the road?"


The Bank of Canada has underpinned the housing market by holding its key policy rate at a near-record low of 1 percent since 2010. But early last year, worried by soaring household debt levels, it began warning its next move would be a rate hike and that Canadians should plan accordingly.   Continued...

A sign framed by maple leaves is pictured in front of the Bank of Canada building in Ottawa July 17, 2012. REUTERS/Chris Wattie