Vancouver Sun

High housing prices prompt warning

Scotiabank slows mortgage growth in Toronto, Vancouver markets

- GORDON ISFELD

Concern over Canada’s overheated housing markets continues to prompt warnings from the Organizati­on for Economic Co-operation and Developmen­t that more needs to be done to rein in mortgage lending.

It’s a message that has been heard loud and clear in Canada’s banking sector, with one leading financial institutio­n saying it recently took the “foot off the gas” on lending growth for residentia­l purchases in the country’s two hottest markets.

“We’re a little concerned about housing prices in the greater Vancouver area and Toronto,” said Brian Porter, CEO of Bank of Nova Scotia.

“We just took our foot off the gas the last couple quarters in terms of mortgage growth ... in terms of Vancouver and Toronto.”

During an interview with Bloomberg TV Canada on Tuesday, Porter said the country’s third-largest lender by assets saw its mortgage growth slow in the most recent quarter.

Porter’s comments came one day ahead of the OECD’s Global Economic Outlook.

The financial-stability risk of high household debt and rising house prices in Canada is one of the OECD’s recurring themes.

On Wednesday, the OECD again emphasized that “very low borrowing rates have encouraged household credit growth and underpinne­d rapidly rising housing prices — particular­ly in Vancouver and Toronto — which together are a third of the Canadian housing market.”

“In relation to household incomes, both house prices and household debt are high,” the OECD said.

It acknowledg­ed regulators have strengthen­ed federal mortgage rules — under both the previous Conservati­ve government and the current Liberals in Ottawa — to

guard against homebuyers piling on debt that they might not be able to manage.

Still, the lending body said those rules “should be tightened further and targeted regionally.” The OECD did not specify what additional changes should be made to help ease concern over Canada’s housing market.

The Bank of Canada began cutting its trendsetti­ng interest rates to near-record lows as the country was coming out of the 2008-09 recession to help spur spending by consumers and businesses. Mortgage borrowing costs remain at, or near, those low levels — attracting more buyers into the housing market and pushing up real estate prices.

That has prompted the federal government to tighten lending rules and adjust the lengths of mortgages, among other measures, in recent years to cool the market and limit borrowing among those who might not be able to manage their debts if the housing market begins to plunge.

Porter, at Scotiabank, said the lender is still comfortabl­e with the quality of its loans. “Generally, Canadians have a strong ability to self-regulate, and they’ve demonstrat­ed that before,” he said.

Meanwhile, the OECD warned that Canada’s economy could lag behind the world average this year, but will pick up speed in 2017 as the resource sector stabilizes and new fiscal measures begin to be felt. It said gross domestic product in Canada is expected to expand by 1.7 per cent in 2016 — well below the three per cent advance expected globally and down slightly from growth of 1.8 per cent in the United States.

The Bank of Canada has also forecast GDP growth of 1.7 per cent for this year. But the group expects Canada’s GDP to reach 2.2 per cent next year — in line with anticipate­d U.S. growth — while the global average accelerate­s to 3.3 per cent.

We just took our foot off the gas the last couple quarters in terms of mortgage growth ... in terms of Vancouver and Toronto. BRIAN PORTER, Scotia bank CEO

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