Last week, in front of a parliamentary committee, the Bank of Canada’s Governor Stephen Poloz dismissed fears of a housing bubble in Canada and assured Canadians that the housing market has not being a risky asset.
“We don’t believe we’re in a bubble,” Mr. Poloz said. “Our housing construction has stayed very much in line with our estimates of demographic demand. There’s no excess.”
The central bank's own calculation is that the housing market is overvalued between 10 and 30 per cent. Mr. Poloz believes that this is not a result of investor speculation but rather high consumer demand that is in part due to record low interest rates.
He also believes that a 10 to 30 per cent decline in price is not required to correct the overvaluation and restore balance in the market because as incomes rise in a strengthening economy, the affordability gap will close without necessitating a drastic drop in home prices.
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