Carney Predicts Moderation For Housing Market

Posted on June 21/2011 by

Having weathered the recent recession fairly with only a few bumps and bruises, but nothing long-lasting for the housing market, moderation is in the forecast, according to Mark Carney, in remarks made during a speech Wednesday in Vancouver.

Carney also credits emergency monetary policy for easing the painful effects of the recession, and for lending momentum to the rebound.

House prices are now up almost a third from where they were in the depths of 2009, and are now 13% beyond the peak that they were at prior to the global financial crisis. Carney said that "residential investment is now at levels that have previously proved to be peaks in Canada and, on a relative basis, in the United States."

So what do Canadians have to thank for their ‘housing armour’ through the recession? Brad Compton, Mortgage Agent, Invis told, "Unlike in the US, housing prices in most Canadian cities were fairly priced. We did not have the large spikes in housing prices driven by easy access to money that we saw in the US.”

“Granted, our mortgage rules at the time were slightly more generous than they are now, but there was a still an underlying stability that helped ensure we did not follow the US down the same path

Once the recession hit Canadians still had access to mortgage funds, unlike the US where the funds dried up. Our access to money allowed the housing market to continue (albeit slower) and avoid the glut of inventory on the market the US experienced. All of these factors resulted in a stronger housing market and any "damage" was very short term.”

Carney predicts moderation in the market now going forward, as “supportive demand forces are now increasingly played out.”

He says, “For example, while measures of housing affordability remain favourable, this is largely because interest rates are unusually low," the Governor said. "

"Rates will not remain at their current levels forever."

Carney too, points specifically to the housing market as having a role in the overall economic recovery for the country.

“Moderation in the residential real estate market is also expected as part of a broader rebalancing of demand in Canada. As the economic expansion progresses, overall economic growth is expected to rely relatively less on household expenditures (including housing investment) and government spending, and more on business investment and net exports.”

He suggests that momentum in the market, and the associated increases with household mortgage financing and other associated household spending represents an upside risk to inflation.

Like Jim Flaherty earlier this week, Carney is preaching fiscal prudence be the guiding factor for households across the country.

“With monetary policy continuing to be set to achieve the inflation target, our institutions should not be lulled into a false sense of security by current low rates," the Governor concluded. "Similarly, households will need to be prudent in their borrowing, recognising that over the life of a mortgage, interest rates will often be much higher."


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