Newspaper article The Canadian Press

High Prices, Low Mortgage Rates Should Be Red Flags on Housing Market: OSFI

Newspaper article The Canadian Press

High Prices, Low Mortgage Rates Should Be Red Flags on Housing Market: OSFI

Article excerpt

OSFI warns of risks to housing market

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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. …

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