Canada's housing market still strong: central bank

Tue Jun 24, 2008 9:48am EDT
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TORONTO (Reuters) - Conditions in the Canadian housing market remain "favorable," with overall prices rising and few signs of excess supply, Sheryl Kennedy, deputy governor of the Bank of Canada, said in a speech on Monday.

"The moderation in activity and price increases that we have seen in recent months is both expected and welcome," Kennedy told an investment industry conference in Banff, Alberta.

House prices play a big role in the nation's economy, she said: they can directly affect inflation, consumption, and decision-making in "the real economy" if a bubble inflates or pops.

Policy makers at the Bank of Canada consider those implications when setting interest rates, Kennedy said.

The central bank surprised financial market watchers earlier this month when it refrained from cutting interest rates, citing a higher risk of inflation from rising energy prices.

A major, widespread reversal in house prices is "unlikely" in the near term because the proportion of unoccupied, newly built dwellings in most Canadian cities is below historical average, Kennedy said.

The recent deceleration in house prices has been most noticeable in certain markets, such as the energy-rich province of Alberta, which had racked up "very steep" price increases in the past two years, she said.

Earlier this month, Statistics Canada said the annual rise in new housing prices slowed to 5.2 percent, its weakest pace since September 2005, as prices in the Western Canadian cities of Edmonton and Calgary slowed.

A declining trend in building permits also suggests that supply is adjusting to softening demand, while "the Canadian mortgage market is in reasonably good shape," Kennedy said.   Continued...

<p>Bank of Canada Governor Mark Carney leaves his office for a news conference upon the release of the Monetary Policy Report in Ottawa April 24, 2008. REUTERS/Chris Wattie</p>