OTTAWA - Canada's banking regulator is warning of the risks in the housing market from too high home prices and too low mortgage rates.
The second in command at the Office of the Superintendent of Financial Institutions says the current environment has made lending riskier today than it was a decade ago.
Deputy superintendent Mark Zelmer says in a speech to a housing conference in Toronto that while household credit has slowed, indebtedness will remain near record levels for some time and income growth is likely to be modest.
He says lenders, such as banks, are well capitalized at the moment but they cannot afford to relax, particularly as 60 per cent of bank lending is in the real estate market.
He says OSFI is trying to mitigate the risks but at the end of the day it is up to banks and mortgage insurers, such as the Canada Mortgage and Housing Corp., to make sure they are lending wisely.
He notes that the U.S. housing collapse demonstrated that when the tide turns on housing, high debt can act as a major drag on overall consumer spending and thus the economy as a whole.