Carney Warns On Housing Markets

Carney Warns On Housing Markets
Mark Carney is issuing a sharp warning that the housing market may be overheating, as his ultra-low interest rates, combined with too much optimism on the part of buyers, fuels prices in the country’s hottest markets. Even as growth in mortgage credit has started to slow and prices are expected to moderate, investment in residential properties nationwide is now near peak levels, Mr. Carney said in a speech to the Vancouver Board of Trade. Without using the word “bubble” to describe a housing market where prices are now 13 per cent above their pre-recession peaks, and without saying the Bank of Canada will take specific measures to tame the sector, Mr. Carney left little doubt that he is concerned.

The risk is that expectations become extrapolative, prompting the classic market emotions of fear and greed – greed among speculators and investors, and fear among households that getting a foot on the property ladder is a now-or-never proposition,” he said. Tellingly, Mr. Carney noted that in Vancouver, the country’s priciest market, as in other “globalized” markets like Sydney and Hong Kong, Asian wealth is coming in as investors diversify and look for hard assets, fuelling valuations that in some cases are “extreme.”...Indeed, while the mortgage market in Canada is more conservative than in the United States, where the subprime lending collapse triggered the 2008 financial crisis and Great Recession, Mr. Carney said real estate loans now make up more than 40 per cent of Canadian banks’ assets, compared with 30 per cent a decade ago, a situation he called “unprecedented exposure.”