Poloz rejects talk of a “bubble”

Speaking to the House of Commons Standing Committee on Finance earlier this week, the Bank of Canada’s governor Stephen Poloz said the country’s central bank doesn’t believe the market is facing traditional “bubble” conditions.

“There are many other characteristics of a bubble situation that are not present,” said Poloz, pointing to highly speculative behaviour – for instance, people buying multiple properties with the sole intent of selling them at a profit in the future.

Still, many committee members recalled the central bank’s report late last year that called the country’s housing market overvalued by up to 30 per cent. Poloz, however, said the housing market, thanks largely to historically low interest rates, helped to buoy the Canadian economy during the global economic crisis.

“So it would be unusual for us to have a cycle like we’ve had where housing did most of the work keeping us out of recession,” he said. “It would be very unusual to come out of that and not have a degree of overvaluation. One has that in every business cycle.”

Poloz also said the BoC’s overvaluation report doesn’t necessarily mean the market is in for a massive correction.
“I understand that 30 per cent is a big number,” said Poloz.

“However, we think this is one of the by-products of something we’ve been through. This is not something that happened on its own; it’s happened as a product of the experience of the post-crisis period and, as the fundamentals catch up to it, it will be sustained.”

Instead, the governor said he believes incomes will benefit from the strengthening economy, and that will help to close the affordability gap.

“Macro-wise, we feel all those ingredients are coming together later than we expected but as we expected,” he said.

 

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