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Flaherty wary of housing bubble, says he will speak to market players


 

OTTAWA – Finance Minister Jim Flaherty is taking on the responsibility of averting a housing bubble in Canada that could destabilize the economy, adding he will speak to those in the business to try and keep a lid on rising home prices.

With the Bank of Canada essentially taking itself out of the game by signalling interest rates won’t be raised for some time, Flaherty said Monday after meeting with about a dozen economists that it falls on his department to ensure the market is stabilized.

“It does fall to the Department of Finance to do anything if we’re going to do anything because there’s basically no room for the Bank of Canada to move,” he said.

“Some of the economists suggested I have some conversations with people in the building industry because what we’re seeing in certain parts of the country (is) a re-acceleration of housing prices. I do speak regularly to people in the business and I’m going to do more of it now.”

Flaherty said he has no intention of acting at the moment, but said he was keeping an eye on the market to see if the current uptick in sales and prices is temporary or the beginning of another hot run.

Most economists see the market slowing after the recent resurgence, including the Bank of Canada. But the central bank also cited the “renewed momentum” as one of three domestic risks to the economy in its October monetary policy report.

“This (the resurgence) would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on,” the bank said. “Such a correction could have sizable spillover effects to other parts of the economy and to inflation.”

The minister has been active in the housing market throughout his tenure, at first easing rules but more recently clamping down as Canadians took on ever-increasing debt levels to buy real estate.

The latest measure, which came in July 2012, was followed by a slump in sales and a slowdown in price gains. But the market began picking up again during the summer, particularly in Toronto and Vancouver, with the average home price hitting a new record high of almost $386,000.

Home prices are not Flaherty’s only worry.

The minister told reporters he remains focused on trying to eliminate as much as possible the price gap between the United States and Canada that one recent report pegged at about 10 per cent.

Flaherty said he has been meeting with CEOs of the country’s major retailers to ask for explanations as to why prices for the same items remain elevated in Canada, adding that he is not altogether persuaded by the answers he has been given.

“There are some companies that look at Canada as a relatively small market that is relative well off, (with a) large middle class, and, ‘Let them pay a little more, and they’ll pay it.’,” he said of merchant attitudes.

However, Flaherty said he will wait until the results of a study being conducted by the market research firm Nielsen before deciding if anything needs to be done.

“It becomes an interesting question of what the government can do about that … there are always persuasive techniques that can be used to nudge people in the right direction,” he said.

The minister has deployed the approach before.

Earlier this year he personally phoned the Bank of Montreal to “persuade” it to raise its five-year fixed mortgage rate after BMO cut it to 2.99 per cent. Flaherty said he was concerned about a race to the bottom on rates that would trigger unsustainable borrowing.


 

Flaherty wary of housing bubble, says he will speak to market players

  1. We were thinking of moving as we are wanting to downsize. So my research is fresh.

    Lots of empty homes bought on speculation pushing the cost of properties into a bubble. All causes by debt rates below inflation. Real inflation is running 7%, mortgages are 3%….you can make 4% in value just by holding onto a empty house.

    Its negative value debt and currency fraud creating this as money is depreciating fast from BoC buying debt no legitimate lenders are buying. No one legitimate lends money for returns below inflation+taxes on inflation. Its negative value investing!

    But Flaherty, BoC, and debt addicted worshipers love this fraud. But since the wholesale practice began in 2006 for the J CU PIIIGGGS in Debt countries, it is the source of the economic problems….debt and currency fraud to keep bloated wasteful bailout corrupt governments afloat.

    Its why government can’t solve the economic problems it created, they are in denial of the fraud they have created. As the country/currency is in negative value returns.

    When currency fails, you don’t want to lend or hold money, you want gold, real-estate, oil, stuff of tangible appreciating value and not government garbage rated debt.

    The Great Debt/Corruption Depression of 2006-20xx will not end until central banks and governments stop their monetary and debt fraud on the people and return the debt markets back to a legitimate return.

    If you can’t get returns of at least real inflation+taxes for your money, the economy is running on debt fraud.

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