Bank of Canada says it’s premature to talk of a housing bubble
Well this was some very welcomed news this week from the office of the Bank of Canada. For months now we have been hearing from the Federal Finance Minister Jim Flaherty that he feels there is a bubble occurring in the housing market in Canada – especially in urban areas like Toronto and Vancouver. This left a lot of my colleagues and Real Estate Agents that I work with scratching our heads, we just weren’t feeling it and felt that the comments from Mr. Flaherty could cause some unnecessary panic and concern regarding increased mortgage rates right around the corner. CMHC also came out with a report stating that housing starts increased by 6.6% from November 2009 to December 2009. Still, we were scratching our heads as the market seemed to be healthy.
David Wolf, an Advisor to the Governor of the Bank of Canada, Mark Carney came out this week and set the record straight on their opinion of all this bubble talk. Well, they basically feel that it is premature and a non event at this time.
Wolf said “Adding higher interest rates are not the solution to cooling the current surge in housing demand and prices.” “If the bank were to raise interest rates to cool the housing market now – when inflation is expected to remain below target for the next year and a half – we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession.”
In his speech, Wolf said “Housing bubbles are usually caused by credit expansions opposed to temporary factors like low interest rates and pent-up demand, and these factors cannot continue to sustain the high numbers of sales and prices seen in Canada over the past few months.” Wolf also said that the central bank is monitoring the housing market closely, adding it required “vigilance, not alarm.”
Well there you have it – for the Bank of Canada who are typically and historically conservative in their communications this is a very strong statement for them to make and would lead you to believe that the possibility of overnight rate increases prior to July are highly unlikely. Let’s face it, mortgage rates are going to go up eventually, that’s the reality but it looks like no immediate increases on the horizon. Contact your Mortgage Agent or Mortgage Broker today for more information or feel free to contact me directly.
Kim Gibbons Your “Mortgage Superhero ®”
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