Bank of Canada says sees no housing bubble yet

Mon Jan 11, 2010 3:33pm EST
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By Jeffrey Jones

EDMONTON, Alberta (Reuters) - The Bank of Canada thinks it is too early to talk about a housing bubble since recent house price increases do not appear to be out of line with underlying fundamentals, a senior official said on Monday.

David Wolf, adviser to Bank of Canada Governor Mark Carney, also said that if the central bank raised interest rates to cool the housing market now, "we would, in essence, be dousing the entire Canadian economy with cold water".

Record low interest rates have helped fuel a housing boom, prompting some analysts to fret about a possible bubble.

"In the Bank of Canada's view, it is premature to talk about a bubble in Canadian housing markets," Wolf said in a speech.

"A significant part of the surge in housing sector activity is associated with temporary factors ... which cannot continue to drive increases in house prices and activity. Thus, we see the housing market as requiring vigilance, but not alarm."

The bank has promised to keep rates at a record low until at least this June unless it sees inflation becoming a threat.

Wolf was standing in for deputy governor Timothy Lane, who canceled his appearance at the last minute due to a private matter.

(Writing by David Ljunggren; Editing by Jeffrey Hodgson)