Listed for $779,000, sold in a war for $929,000
The head of the Bank of Canada, Mark Carney, appeared as a witness before the House of Commons finance committee on Wednesday on Parliament Hill. I asked him if the new crop of 40-year amortization mortgages were Canada’s equivalent of the American subprime. Did he worry this might accelerate the busting of the housing bubble here? Some of his comments are carried in this wire story, which moved a few hours later. — Garth.
BoC governor Carney warns about loosening mortgage standards in Canada
By Julian Beltrame, The Canadian Press
OTTAWA – Bank of Canada governor Mark Carney is concerned about the loosening standards in the Canadian mortgage system, particularly the growing popularity of mortgages amortized over a 40-year period.
Carney told a Commons committee Wednesday that the central bank is watching developments in the mortgage lending sector closely to ensure that the abuses seen in the U.S. subprime market do not occur in Canada.
“We have concerns with the increased prevalence of very long amortization and higher value mortgage products,” he said.
“They add to momentum in the housing market and if everyone has a 40-year amortization mortgage, then you just have higher housing prices.”
And Carney conceded that stand five-year mortgage rates for Canadian home buyers had not decreased in line with his bank’s 150-basis point cut in the overnight interest rate to three per cent from 4.5 per cent in early December.
“The costs for the banks have increased and yet there still remains an operating band (for other loans), except for five-year mortgages,” he said. “Its difficult to provide a full explanations” beyond the global problems in the security markets.
Still, the governor stressed that the Canadian housing market is not following the path of the U.S., which went through several years of skyrocketing growth before bursting last summer and collapsing.
Although housing prices have risen aggressively in Canada, Carney said the country has the lowest housing affordability measure among 20 industrialized countries surveyed by the International Monetary Fund, alongside Austria.
“The structure of our housing finance is entirely different than that of the United States,” he said, and the risk of a housing slump could impact the wider financial system “is not possible in our system, to the U.S. magnitude.”
In his first meeting with the Commons finance committee since taking over as governor in February, Carney asked the MPs to support legislation that would widen his powers to expand the assets the central bank can accept in order to lend chartered banks money in times of financial stress.