BOC's Wilkins:Cdn Housing Mkt Can Handle Current Interest Rate

--Better Idea Of Housing Dynamics By September

By Yali N'Diaye

     OTTAWA (MNI) - While Bank of Canada's top officials, Governor Stephen Poloz

and Deputy Governor Carolyn Wilkins, said Monday in testimony before the House

Committee on Finance that housing fundamentals remained very strong in the

country and can handle the current level of interest rates, they don't expect to

have a clearer picture of the effect of new mortgage rules and higher interest

rates until the summer.

     The federal government introduced more stringent mortgage underwriting

standards - referred to as B20 - that include stress testing even for uninsured

mortgages, which came into effect in January. 

     As a result, there was a pull forward of housing sales as borrowers were

trying to qualify before such rules came into effect January 1.

     Meanwhile, the central bank itself has raised rates three times since last

July by a cumulative 75 basis points, bringing its overnight rate target to

1.25%, where it left it unchanged last Wednesday.

     The central bank has said it would take "some time" to evaluate the

economy's response to higher interest rates and tighter macro prudential rules,

especially the housing sector.

     --CLEARER PICTURE IN SUMMER

     In the housing sector, a number of factors are at play, including higher

interest rates and new mortgage rules, Wilkins told the Committee during a joint

testimony with Poloz.

     For now, Wilkins said "it is clear that the real estate market can support

the interest rate that we have."

     After the pull forward of housing transactions boosted sales in the fourth

quarter, they declined in the first quarter.

     Now, the BOC is looking at whether this is a temporary effect.

     It will take "more than a few data points" to figure out how much is

related to the new mortgage guidelines, how much to higher interest rates, and

how much to the pull forward of sales and its reversal to normal, Poloz said.

     "We will see over the summer and by September, we will have new data and we

will be able to see what the effect has been" of new measures and higher

interest rates, Wilkins specified.

     --VERY SOLID FUNDAMENTALS

     While a clearer picture won't happen until the summer, Poloz said the new

measures have taken "some of the extrapolative expectations out of the market."

     He also indicated he doesn't see any crisis situation down the road.

     "The fundamentals of the housing market remain very solid," with a solid

demand, Poloz said. While higher interest rates and the new mortgage guidelines

will slow the growth rate, it won't cause any "permanent decline in that

growth." Rather, he expects housing sales growth to just moderate with a lower

contribution to GDP growth.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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