Far be it from me to suggest that Mark Carney’s career trajectory and choices of vacation spots aren’t fascinating—and both topics got a decent share of attention at his news conference today—but the Bank of Canada governor’s latest message on the Canadian housing market strikes me as even more interesting.
Here at Maclean’s—as you might have noticed if you watch our cover stories, including this recent one—we are quite intrigued by the housing market. And I don’t think we’re alone, based on the evidence of the many dinner conversations I’ve heard turn, inexorably it seems, to real estate prices. Carney’s message today, as he discussed the bank’s quarterly monetary policy report, is that the heat is out of the market.
This he presents unequivocally as good news, since it suggests an easing of high, mortgage-driven household debt levels that have been among Carney’s more acute longstanding concerns about the Canadian economy. “Consumption is expected to grow moderately and residential investment to decline further from historically high levels,” he told reporters. “The bank expects trend growth in household credit to moderate further, with the debt-to-income ratio stabilizing near current levels.”
He turned to Tiff Macklem, the bank’s senior deputy governor (who is, incidentally, getting more attention these days as a leading candidate to succeed Carney when he departs next June to take over the Bank of England) to flesh out the household debt picture with details. Macklem pointed to three key points: housing starts, which were running around 225,000 a month through most of last year, dipped to 200,000 units in November and December; house sales have dropped below their 10-year average; and prices have been flat lately.
But Macklem said room remains for the housing market to slow even further. To meet “demographic demand,” he noted, housing starts would have to drop to 185,000 a month. And while slower price growth suggests Canada is already “moving towards a more balanced housing market,” today’s prices are still, in the bank’s view, “elevated” after “ a 10-year build-up.”
Carney said raising interest rates specifically to discourage home buyers from taking on too much debt isn’t really an option. He called monetary policy “the last line of defence” when it comes to trying to influence mortgage markets—essentially discouraging buyers from borrowing more than they can afford to pay back over the long term. He praised the Conservative government’s use of other tools, especially tightening mortgage insurance rules no less than four times, to encourage sensible borrowing.
In case you’re wondering, Carney, whose sojourn last summer at the Nova Scotia getaway of Liberal MP Scott Brison has attracted considerable attention, didn’t touch specifically on prices in the cottage market. (How about that for segueing?) He did, however, say in answer to a question that he didn’t feel he was obligated to discuss his holiday. “I don’t see that I need to detail my private life,” he said, “and my interactions with my friends.”
As for related reports that Carney indulged in private conversations with Liberals about seeking their party’s leadership, back before his surprise announcement late last November that he would be leaving next spring to become governor of the Bank of England, his answer today indicated that those were one-sided discussions. “I can’t control what people ask of me,” he said.
Interesting. But not as interesting, I would guess, as what your house will be worth six months from now.