Bank of Canada governor Mark Carney agreed Tuesday that an abrupt correction in Canada's housing market is possible.

Appearing before the Commons finance committee and responding to a question from Nova Scotia MP Scott Brison, Carney said he was not predicting a significant drop in prices, but given how far prices have risen and the high level of Canadians' household debt, it could not be ruled out.

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Bank of Canada governor Mark Carney, shown outside the bank's headquarters on Oct. 20, on Tuesday defended progress made by G20 finance ministers on stabilizing currencies. ((Sean Kilpatrick/Canadian Press))

Carney told the committee the bank is limited in what it can do to use interest rate changes to encourage Canadians to reduce their debt.

He repeated that one option is for the federal government to consider regulations to further tighten mortgage lending, something Ottawa has already done once, in February.

Defends G20 progress

Carney also defended progress made at the meeting of G20 finance ministers in Seoul Oct. 23 -24 to discuss exchange rates and trade imbalances.

The ministers pledged to avoid competitive devaluation but failed to agree on a U.S. request to keep current account imbalances at around four per cent.

The G20 communiqué announced that the International Monetary Fund would assume the role of monitor of members' current account balances for excesses but it set no specific target to even out trade imbalances.

The lack of targets led several analysts to dismiss the agreement as of little consequence.

But Carney said "progress is being made" towards more concrete rules aimed at having all economies move to fully floating exchange rates.

"The process," he said, "is going to unfold over the course of years as opposed to one meeting with a magic solution."

Carney predicted it would take meetings well into next year to address the problem of trade imbalances.