Canada’s housing market is not in a bubble and a sudden, sharp correction to house prices is unlikely barring another major shock to the global economy, Bank of Canada governor Stephen Poloz said earlier this week.
The central bank governor was testifying before the Senate Banking Committee when he made the remarks, spurred partly by two cautionary reports issued this week by Fitch Ratings and the Organization for Economic Cooperation and Development (OECD). The Fitch report estimated that Canada’s housing market was 21 per cent overvalued while the OECD recommended that Poloz raise interest rates by the end of 2014.
Poloz made it clear that this is not the way he views the Canadian housing market in his testimony to the Senate Banking Committee on Wednesday. While the central banker acknowledged that overbuilding in some regions and high household indebtedness still pose risks to the economy, the most likely scenario is a soft landing in which home prices stabilize.
“Our judgment is [the housing market] is a situation that is improving, this is not a bubble that exists here that would have to be corrected,” he said. “If there is a disturbance from outside our country that’s another analysis.”
The governor was asked point blank about the OECD report that recommended an interest rate hike at the end of 2014, with the rate continuing to rise steadily to 2.25 per cent by the end of 2015.
Poloz replied that his own view differs in a material way from what the OECD is saying. In his own analysis, there is plenty of slack in the Canadian economy and inflation, currently sitting at 1.1 per cent, is well below of the Bank of Canada’s target of two per cent.
Read Poloz’s opening statement to the Senate Banking Committee here.