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IMF expresses concern over 'hot spots' in Toronto and Vancouver housing markets

Says policymakers need to take more action on housing file

Affordable housing in Nova Scotia.

Canada's 'housing market is overheated but hot spots are concentrated in Vancouver and Toronto,' the IMF said. (Robson Fletcher/CBC)

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The International Monetary Fund says concerns over Canada's housing market are valid, but that doesn't necessarily mean there are systemic problems that need urgent attention.

The agency revealed its annual review of Canada's economy on Wednesday, and on the whole the outlook for Canada's economy is positive, with an expectation of 2.5 per cent growth this year and 1.8 per cent growth after that.

But despite the generally sunny forecast, the group does single out continuing concerns with Canada's housing market, and suggests policymakers need to stay focused on the file.

The IMF's mission chief for Canada, Cheng Hoon Lim, told reporters in Ottawa on Wednesday that the agency likes the steps Ottawa has taken in recent years to rein in the housing market, but would like to see more.

"Further tightening is needed," she said.

Lim said that the latest move, last October, to make it harder to get an insured mortgage by forcing borrowers to undergo a "stress test" to gauge their ability to withstand higher rates seems to have the desired effect of slowing down the growth of mortgage debt.

But it doesn't seem to have put the brakes on rapidly rising house prices, she said. 

"There is an effect but not as strong," she said.

While the IMF doesn't think Canada's housing market as a whole has systemic problems, some pockets need more attention.

"The housing market is overheated but hot spots are concentrated in Vancouver and Toronto," Lim said.

Lim described issues at alternative mortgage lender Home Capital as "isolated" and unlikely to cause systemic problems, but she does have "broader concerns about housing."

While lauding Ottawa for the steps its taken so far, the IMF urged more action on the file, including:

  • Implementing a cap on debt-to-income levels for mortgage applicants.
  • More co-ordination between federal and provincial bodies when implementing new rules.
  • Dedicated resources to collect better data on real estate transactions.

The IMF did say, however, that recent moves to implement foreign buyers taxes in B.C. and Ontario are discriminatory and urged authorities to replace them with rules or taxes aimed at discouraging speculation without targeting non-residents.

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