Federal Finance Minister Joe Oliver says he believes Canada’s housing market is on track for a soft landing and he doesn’t believe he should intervene on low mortgage rates being offered by banks.
“On the advice of the Bank of Canada and CMHC [Canada Mortgage and Housing Corporation] we are looking toward a soft landing and we don’t believe we are in a bubble situation,” he said at a news conference today.
A report from the Canadian Real Estate Association released Monday morning said the average resale price of a Canadian home rose 7.1 per cent in the past year to $416,584 in May.
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But Oliver said he did not believe it was his role to speak directly to the banks about lowering mortgage rates, which have allowed five-year rates to slip below three per cent this spring.
“I have not spoken to the banks about what their rate policies should be. I don’t feel that is appropriate or necessary at this point,” Oliver said.
He was speaking at a news conference in Ottawa after talking with private-sector economists from financial institutions and think-tanks, along with small business representatives.
Some of those economists had expressed concern about Canada's hot housing market, which both the International Monetary Fund and Organization for Economic Co-operation and Development (OECD) have warned is an economic risk, in part because many urban markets are unaffordable for Canadian workers.
Oliver pointed to the steps taken by CMHC to calm housing prices, including reducing mortgage amortization periods to 25 years, enforcing minimum down payments and demanding that banks determine whether lenders qualify for mortgages based on five-year rates.
"The government’s intent is to reduce its exposure to the market," he said, adding, "There are private sector participants and we would like to see them take a larger share."
Oliver said that based on his consultation with the group of economists, he believes Canada is on track to have a federal surplus next year.
"I remain confident that we will return to a balanced budget in 2015," he said. However, he warned there are risks, including the slow first quarter experienced by the U.S.
"The global economic environment remains fragile and there are still risks to the outlook," Oliver said.
The most recent forecasts are little changed from what the late Jim Flaherty incorporated in his February budget. Real growth in 2014 is projected to be a tick lower at 2.2 per cent — largely because of the poor, weather-influenced first quarter of the year — but nominal growth, which is more directly tied to tax revenues — is expected to be slightly higher thanks to strong oil prices.
Economists speaking to reporters after the meeting said despite some significant developments since February, the overall forecast of moderate growth for the Canadian economy remains largely intact.
"Even though we've had a very bad winter, we had a weak first quarter, there's some global risks that have increased attention, there's some additional geo-political risks, nevertheless the assumptions haven't fundamentally changed," explained TD Bank chief economist Craig Alexander.