The head of Canada’s banking regulator told a group of Canadian mortgage brokers that she keeps a very close eye on the country’s housing market but refrained from commenting on whether she thinks a housing bubble exists. (Tweet this)
Julie Dickson, the superintendent of OSFI, made the remarks at the Canadian Association of Accredited Mortgage Professionals (CAAMP) 2013 Mortgage Forum in Toronto on Monday.
Dickson chose not to wade into the housing bubble debate, saying OSFI does not “volunteer opinions on whether a bubble exists.”
“This is primarily because history has shown it is difficult to determine whether a bubble in any market exists, what the size of that bubble might be, or the consequences of it bursting,” she explained.
Identifying a bubble is a significant challenge and by taking a position, the banking regulator could positively reinforce banks’ current behaviour, leading them to lend more, or spur an unnecessary slowdown in lending.
In her prepared remarks, Dickson went on to caution financial institutions, asking them to consider the risk of economic shocks to consumers, such as an increase in interest rates or a sharp price correction in the housing market.
“Banks have to set aside reserves for unexpected losses and are typically far better situated to deal with shocks than consumers — who may be highly indebted and therefore particularly vulnerable to significant increases in interest rates or unemployment,” she said.
Dickson referenced the recent Fitch Ratings report that said a “soft landing” was likely for the Canadian housing market and the OECD report that found Canadian home prices were overvalued “on the basis of two gauges: price-to-income and price-to-rent.”
She also announced OSFI’s new regulations framework to govern how mortgage insurers interact with mortgage lenders. A draft of Guideline B-21 will be ready for public consultation by the end of March 2014.
In related bubble news, Bank of Canada Governor Stephen Poloz did not shy away from bubble talk in his recent testimony before the Senate Banking Committee.
“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.”