Bank of Canada governor Mark Carney, seen prior to a Commons committee hearing last year, says rising mortgage rates will undermine Canada's torrid housing market. (Tom Hanson/Canadian Press)

Bank of Canada governor Mark Carney sounded a note of caution Tuesday, saying that despite the buoyant housing market, consumers should be wary of taking on too much debt because the heady times won’t last much longer.

Canada’s housing market never tanked the way the American market for homes did during the recent recession, and it rebounded rapidly when the economic doldrums ended — a little too rapidly, Carney told the House of Commons finance committee.

The country’s housing market will start to cool down in the next quarter, he forecast, and will remain at lukewarm levels for several years.

"We see a marked weakening in housing over the course of our projection [into 2012], starting from the second quarter of this year and over the balance," Carney said.

"We share concerns there are groups of Canadian who run the risk of being overextended on their finances."

The comments were not new for Carney. He has been warning about the record level of debt being held by Canadians for almost a year.

According to the latest data, Canadian households on average owe $1.47 for every dollar of disposable income — an all-time high — while interest rates are at an all-time low.

Carney said much of the recent torrent of spending on housing, which includes spending on home renovations, has been pushed forward by super-low rates and by the federal government’s temporary home renovation tax credit.

That level of investment can't be sustained, he said, particularly because mortgage rates have already begun to rise.

3 more banks hike rates

Three more Canadian banks joined the parade of financial institutions on Tuesday that have raised mortgage rates in April.

The Canadian Imperial Bank of Commerce, Scotiabank and the Desjardins Group, which operates credit unions in Ontario and Quebec, raised mortgage rates across a range of maturities by 15 basis points, or 0.15 percentage points, the companies announced.

For example, CIBC and Desjardins will now charge 6.25 per cent for a five-year closed mortgage and 7.20 per cent for a 10-year mortgage.

The three institutions followed in the footsteps of the Royal Bank of Canada and TD Bank, which announced similar moves earlier in the week.

Credit unions still offer five-year rates as low as 4.2 per cent.

Increased rates

Canada's banks are reacting to rising costs of borrowing money for five to 10 years.

The interest rates attached to financial instruments with those life spans have risen substantially over the past few months. That is because the strengthening Canadian economy has the Bank of Canada concerned about future inflation and the central bank said it is willing to push up its target rates in order to reduce these pressures.

As a result, Canadian rates have increased steadily over the past few months.

The CIBC's economics department has forecast that a 10-year Canadian bond will have an interest rate of four per cent by 2011. If true, that would be a gain of 66 per cent compared with the 2.41 per cent rate for a similar bond in 2009, according to the Bank of Canada.