The Canadian Press - ONLINE EDITION

High prices, low mortgage rates should be red flags on housing market: OSFI

  • Print

OTTAWA - Canada's banking regulator is warning both lenders and borrowers to be careful about moving deeper into the still pricey housing market, saying the risks are increasing and are likely to remain elevated.

In a speech at a housing conference in Toronto, Mark Zelmer, the regulator's second in command, gave a general caution to lenders, mortgage insurers and borrowers.

"Now, I would not presume to claim that borrowers are acting irrationally or do not know what they are doing," said Zelmer, deputy superintendent at the Office of the Superintendent of Financial Institutions.

"But, by the same token, it is clear that the ability of the household sector as a whole to absorb major shocks is less now than it was a decade ago...So, from a prudential perspective, the environmental risks associated with lending to households are higher now than in the past."

In recent statements, both Finance Minister Joe Oliver and Bank of Canada governor Stephen Poloz have played down the vulnerabilities in the housing market, although the latter still regards it as the top domestic risk to the economy.

Oliver has pointedly said he expects a soft landing and was not overly concerned that major banks had dropped their key five-year mortgage rates below three per cent.

But it appears that OSFI, which recently gained oversight responsibilities for the Canada Mortgage and Housing Corp., is still concerned about the record high level of home prices and near-record debt levels of household debt — a crippling combination if there was a shock to the economy.

Some economists, particularly David Madani of Capital Economics, have also flagged the likelihood of a sharp downturn in the market and the warnings get more strident each time a report shows a pick-up in sales or prices.

Zelmer notes the lesson from the 2007-08 U.S. collapse was that housing impacts a large segment of the economy, including construction, durables and related industries, and when the "tide turns, a run-up in household debt can serve as a major drag on consumer spending."

Last week Statistics Canada reported household debt to disposable annual income had edged down to 163.2 per cent in the first quarter of this year, but remained very near the 164.1 per cent record for the measure reached in the fall of 2013.

As well, the Canadian Real Estate Association reported that national average price for homes sold in May rose by 7.1 per cent from year earlier to $416,584.

Zelmer said the growth in indebtedness can be attributed to households taking advantage of super-low interest rates to buy homes and cars, individuals borrowing against home equity to support retirement, and people who borrow just to make ends meet because they have been dealt a serious life blow, such as losing a job.

For banks, he cautioned that past experience shows it could become tempting for mortgage lenders and insurers (such as CMHC) to ease up under the "enchanting lull of the siren song of market share."

OSFI will be careful to ensure that lending rules are not relaxed, he said, but ultimately the responsibility lies with the banks and insurers.

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Glenn January won't blame offensive line for first loss

View more like this

Photo Store Gallery

  • June 25, 2013 - 130625  -  A storm lit up Winnipeg Tuesday, June 25, 2013. John Woods / Winnipeg Free Press - lightning
  • A Great Horned Owl that was caught up in some soccer nets in Shamrock Park in Southdale on November 16th was rehabilitated and returned to the the city park behind Shamrock School and released this afternoon. Sequence of the release. December 4, 2012  BORIS MINKEVICH / WINNIPEG FREE PRESS

View More Gallery Photos

Poll

Should Winnipeg control growth to deal with climate change?

View Results

View Related Story

Ads by Google