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Thursday, January 26, 2012

Parts of Canadian Housing Over Valued: Mark Carney

The Bank of Canada is joining the chorus of voices that are saying some markets in Canada are overvalued, and possibly in danger of correction.

In an interview broadcast on CTV over the weekend, Mark Carney weighed on the danger of overheating markets, and touched on the possibility of government intervention.
In the interview, Carney said that he believes that measures taken to date to tighten the mortgage market have been effective, and at this point in time more is not necessary. However, with the continued existence of low interest rates, the possibility of an asset bubble in some vulnerable centres, with home equity possibly over leveraged does exist- and does cause some concern.

Carney is not ruling out intervention, but said that they were very much adopting a “wait and see” policy. Last week Jim Flaherty told reporters that, while there is potential concern still existing in the Canadian property market, and while the government is certainly keeping a close eye on the situation, intervention at this point in time is likely not necessary.

Many have predicted that 2012 will see a cooling in the housing market, despite a continuation of low interest rates.  Threats from a dragging economy, recessionary trouble in Europe and fears over employment will cause the market that has been robust to moderate.

Those analysts that have predicted market moderation are largely feeling that overvalued markets will not crash necessarily, but will land softly, and that market values will drift down gradually due to market fundamentals that exist already.

Some do feel that the market will continue to shine this year. Royal LePage predicts that the market will continue to climb in 2012 and that a gradual market slowdown will not even appear until 2013, which is when most put the next rate hike at.

In his CTV interview, Carney commented on the fragility of the export relationship with the US, and that Canadian exporters should seek out alternative partners, as trouble continues to brew in the US.