OTTAWA (Reuters) - Canadian Finance Minister Bill Morneau said on Tuesday that measures put in place by federal and provincial governments to cool the housing market are slowing markets in regions where activity had been rising at an unsustainable pace.
The Canadian government late last year introduced tighter mortgage lending rules to discourage consumers from taking on too much debt.
The Ontario provincial government in April imposed a number of measures intended to rein in the hot Toronto market, including a tax on foreign buyers that has caused sales and prices in Canada's largest city to decline.
Ontario's moves, which were similar to a foreign buyers' tax implemented in Vancouver last summer, came amid worries Toronto's housing market was overheating.
Morneau said the changes by both levels of government were intended to make sure home prices do not rise unsustainably and that the response in the market was playing out largely as had been expected.
"We believe the measures we put in place are having the desired impact and that is that they are slowing down those markets that were rising at an unsustainable pace," Morneau told reporters.
But Morneau also said it was too early to draw conclusions on the ultimate effect on the market.
Economists are watching the depth of the cool down in Toronto closely and expect a recent interest rate hike from the Bank of Canada could prolong the slowdown compared to Vancouver, where prices have rebounded.
Improving economic growth means households are more resilient to higher interest rates than they were a year ago, though the increase in rates will likely "change people's behavior in some way," Morneau said.
The Bank of Canada last week raised interest rates for the first time in seven years, prompting concerns overly indebted Canadians will find it harder to keep up with borrowing costs.
Reporting by Leah Schnurr, editing by G Crosse