The Canada Mortgage and Housing Corporation issued its annual report on Tuesday, dismissing fears of a housing bubble in the country.
Contrary to the opinion of the Finance Minister, Jim Flaherty, the CMHC’s conclusion on the state of the current housing market is that “clear evidence of a bubble is lacking.” The report also showed housing starts— new housing units under construction— rose 14 per cent in April to 244,900, beating market expectations by 10 per cent.
Leaders of some of Canada’s biggest financial institutions gathered for an economic summit hosted by Bloomberg in Toronto seemed to corroborate the findings in the CMHC report.
“When we look at the overall marketplace, there might be pockets of vulnerability but we remain quite comfortable,” said Gordon Nixon, chief executive officer of Royal Bank of Canada “Frankly, I’d like to see the rhetoric come down a little bit.”
A residential real-estate boom in the world’s 10th-largest economy has prompted senior policy makers such as Bank of Canada Governor Mark Carney and Finance Minister Jim Flaherty to warn that Canadians may be taking on too much debt.
Carney told lawmakers April 24 that high levels of household debt remain the greatest domestic risk to Canada’s economy. In an appearance before a parliamentary committee, he reiterated that a rate increase “may become appropriate,” and warned Canadian families to exercise “caution” with their debt levels.
Carney has kept his key lending rate unchanged at 1 percent since September 2010 in the longest pause since the 1950s.
Housing prices in Canada are probably about 10 percent overvalued, economist Paul Fenton said at the Bloomberg summit.
There doesn’t seem to be a sense that there’s been overbuilding, and housing doesn’t pose a systemic threat to the function of the nation’s financial system, said Fenton, senior vice-president and chief economist at Caisse de Depot et Placement du Quebec.