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OTTAWA (Reuters) - The price of houses in Canada should rise more slowly over the next year but should not fall as in the United States, the Bank of Canada projected on Thursday.
"The construction of new homes remains elevated, and supply has been increasing in the resale market. Demand should ease, since affordability has deteriorated and economic growth is expected to slow," the central bank said in its Monetary Policy Report.
"However, a general reversal in house prices is unlikely, as there are few signs of excess housing supply," said the bank, which has watched the housing market closely for signs of overheating, particularly in the oil-rich West, as well as for any hint of a U.S.-style meltdown.
For the last year the bank has been saying that rising house prices have been an important contributor to growth in real household spending, through home-equity borrowing.
"Going forward, the continued moderation in the growth of house prices should reduce the support to household spending coming from home equity, but this merits continued careful monitoring so that financial factors driving activity are fully taken into account," it said.
Reporting by Randall Palmer; editing by Renato Andrade