After rising steadily since 2008, Statistics Canada’s new housing price index has flattened out in September, following on a 0.1 per cent increase in August, but a new report says that's no cause for concern as Canadian real estate development will remain strong.
New housing prices fell in Edmonton, Windsor, Ottawa and Montreal, but those decreases were offset by a 0.5 per cent jump in Calgary, which is seeing higher labour and materials prices as it recovers from floods this summer.
The flat housing prices are no cause for concern, according to the Emerging Trends in Real Estate report from Price Water house Coopers and the Urban Land Institute.
Canada’s relative economic health, especially compared to our neighbours to the south, has kept residential real estate strong, says the report, released Wednesday.
Trend to urbanization
Tighter mortgage rules and increasingly cautious banks have helped flatten condo prices, especially in North America’s hottest condo market — Toronto, the report said. But, cranes are expected to remain visible along major city skylines as projects already in the pipeline are fully built and but the trend toward urbanization keeps demand buoyant.
The trend among young Canadians to live, play and work all in the same neighbourhood is driving a boom in both condos and urban office development, says the report.
The outlook for development of all types of property – from residential to commercial – is good in Canada, according to PwC partner Lori-Ann Beausoleil.
Transit is of increasing importance to all forms of real estate development, she said.
Look for transit
“With challenging infrastructure in all major Canadian centres coupled with the urbanization trend, there will be a continued demand for retail, office and residential space in our urban centres where there is easy access to mass transit,” she said.
Redevelopment of urban areas and creation of mixed use real estate are key trends for the coming year, she said, especially in centres such as Vancouver, Calgary, Toronto and Montreal.
But the report says real estate that is far from transit, or a long way from residential areas may become underused and is less likely to be redeveloped because of a significant shift in where people want to live.
Increased automobile commute times and snarled traffic are turning people off suburban living and many Canadians are choosing condo living over the house with a yard which comes with a frustrating commute.
These include the 20-somethings, who are establishing lifelong habits of urban living, and baby boomers, who want to give up snow-shovelling and be closer to the symphony, the report said.
Changes to office market
Older commercial or suburban properties that are not close to transit may wait in limbo for redevelopment.
The office development business is changing with more demand for open layouts, shrinking space use per capita, technology impacts and demands for energy efficiency, Beausoleil advises.
She said the Canadian real estate sector is likely to remain strong for the coming year, and the U.S. market is likely to recover.
“The forecasts show that Canadian real estate players are able to both invest and attract investors. With the U.S. economy on the upswing, we are likely to see even more activity between the two countries, Beausoleil said.
“Over the last several years, Canada has been the interesting real estate story while the U.S. markets were in distress, but now, we expect that the continuing U.S. recovery will be the real story. Still, Canada’s strong market and the spending power of our consumers will continue to position us well in the international community as we head into 2014.”
What is the “Best Mortgage Rate” ?
It’s not synonymous with the “lowest mortgage rate.”
The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.
Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.
That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.
RateSpy’s edge is data, lots and lots of rate data — more so than most other Canadian rate comparison sites combined.
Now, why on earth would someone need access to 3,000 mortgage rates and 300+ lenders, you ask? It boils down to probability.
At any given time, different mortgage providers are motivated to offer more heavily discounted rates. They may have:
Surplus liquidity (e.g., a credit union with excess deposits),
A need to replace assets in securitization programs (which is why we see big discounts on mortgages with odd terms, like 3.4 years), or
Internal volume targets that haven’t been met, thus encouraging more competitive pricing.
By definition, the more lenders and brokers one has to compare, the higher the probability of finding a lender motivated to discount below the market.
Of course, once you find a low-rate provider, that doesn’t mean its rate entails the lowest borrowing costs. Asking the right questions is mandatory to ensure the mortgage balances renewal risk with interest savings, and lets you make changes down the road—penalty free. This mortgage rate & features checklist can serve as a guide in that respect.
For these reasons, the interest rate alone can be a misleading number. If your lender or mortgage broker is quoting you a rate 10-15 basis points higher than what you’ve found online, it means nothing until you compare the features, restrictions and speed/quality of service from both providers
Our responsibility
Mortgage shoppers are, and will continue, flocking to rate comparison websites. But the information on these sites is vastly inadequate at the moment. Why, for example, don’t rate comparison sites speak to the penalty facing consumers if they break the mortgage early? Variations in penalty calculations can, and do, cost borrowers thousands more than small rate differences.
We have a responsibility to help consumers find the best overall deal, not just the best rate. The best deal factors in things like term selection, penalty cost, refinance restrictions, porting flexibility, advice on properly structuring an application, advice on building equity and so on.
Every Canadian rate comparison site I’ve seen underperforms in these areas. Even ours…for now. Our mission is to address these information deficiencies so consumers can identify the right combination of rate savings, flexibility and advice in an objective forum with no sales pressure.
Thereafter, we have to make it easier for folks to find competent mortgage professionals for a second opinion. Think about it. If you don’t have a trusted referral, where do you look to find a great broker or banker? How do you know the person you’re calling has the tenure, experience, qualifications and competitiveness to serve you best? Most existing advisor directories help you screen by little more than company, province or city.
Expect mortgage comparison sites to significantly evolve along these lines in 2014.
Sidebar: Rate comparison sites, in their present form, cater only to AAA fully-qualifying clients. Subprime,business-for-self and investor clients are a whole different conversation. There is currently no good mortgage comparison site for these customers, making knowledgeable mortgage advisors even more essential.
The best mortgage rate corresponds to the mortgage and advice that saves (and in some cases makes) you the most amount of money long-term.
Mortgage professionals routinely advise, “It’s not all about the rate.” To some, that sounds like evil sales-speak meant to boost commissions. The reality is that mortgage flexibility, contract restrictions and advice all have a definitive impact on borrowing costs. And most people don’t discover how much impact until after their mortgage closes.
That said, consumers are obliged to negotiate the very best deal they can. Three years ago, we asked ourselves, what kind of mortgage comparison website would we want if we were shopping for a mortgage ourselves? We thought up RateSpy.com.
RateSpy’s edge is data, lots and lots of rate data — more so than most other Canadian rate comparison sites combined.
Now, why on earth would someone need access to 3,000 mortgage rates and 300+ lenders, you ask? It boils down to probability.
At any given time, different mortgage providers are motivated to offer more heavily discounted rates. They may have:
Surplus liquidity (e.g., a credit union with excess deposits),
A need to replace assets in securitization programs (which is why we see big discounts on mortgages with odd terms, like 3.4 years), or
Internal volume targets that haven’t been met, thus encouraging more competitive pricing.
By definition, the more lenders and brokers one has to compare, the higher the probability of finding a lender motivated to discount below the market.
Of course, once you find a low-rate provider, that doesn’t mean its rate entails the lowest borrowing costs. Asking the right questions is mandatory to ensure the mortgage balances renewal risk with interest savings, and lets you make changes down the road—penalty free. This mortgage rate & features checklist can serve as a guide in that respect.
For these reasons, the interest rate alone can be a misleading number. If your lender or mortgage broker is quoting you a rate 10-15 basis points higher than what you’ve found online, it means nothing until you compare the features, restrictions and speed/quality of service from both providers
Our responsibility
Mortgage shoppers are, and will continue, flocking to rate comparison websites. But the information on these sites is vastly inadequate at the moment. Why, for example, don’t rate comparison sites speak to the penalty facing consumers if they break the mortgage early? Variations in penalty calculations can, and do, cost borrowers thousands more than small rate differences.
We have a responsibility to help consumers find the best overall deal, not just the best rate. The best deal factors in things like term selection, penalty cost, refinance restrictions, porting flexibility, advice on properly structuring an application, advice on building equity and so on.
Every Canadian rate comparison site I’ve seen underperforms in these areas. Even ours…for now. Our mission is to address these information deficiencies so consumers can identify the right combination of rate savings, flexibility and advice in an objective forum with no sales pressure.
Thereafter, we have to make it easier for folks to find competent mortgage professionals for a second opinion. Think about it. If you don’t have a trusted referral, where do you look to find a great broker or banker? How do you know the person you’re calling has the tenure, experience, qualifications and competitiveness to serve you best? Most existing advisor directories help you screen by little more than company, province or city.
Expect mortgage comparison sites to significantly evolve along these lines in 2014.
Sidebar: Rate comparison sites, in their present form, cater only to AAA fully-qualifying clients. Subprime,business-for-self and investor clients are a whole different conversation. There is currently no good mortgage comparison site for these customers, making knowledgeable mortgage advisors even more essential.
U.S. Government Shutdown Driving Canadian Mortgage Rates Lower, For Now
The U.S. government shutdown has had an interesting side effect for Canada: It has held out the promise of lower mortgage rates, and therefore a stronger housing market.
Not that the housing market needs much help these days. Housing starts jumped 5.3 per cent in September, according to data released Tuesday by Canada Mortgage and Housing Corp., beating analysts’ estimates. All parts of the country saw rising starts except Ontario, where they fell 15.6 per cent.
September house sales in the two most closely-watched markets, Toronto and Vancouver, are up 30 per cent and 63.8 per cent respectively, according to those cities’ real estate boards (though there is reason to doubt those numbers).
But the housing market could see even more heating, thanks to the U.S. shutdown. That’s because, with the economic uncertainty, investors are flocking to bonds, driving down bond yields. Fixed-rate mortgage rates are tied to bond yields, somortgage rates are going to come down as a result, according to RateSupermarket’s mortgage outlook panel.
Of course the flipside of lower mortgage rates is higher house prices, and Canadian municipal leaders are getting worried about the erosion of affordability, the National Post reports.
In a letter to Prime Minister Stephen Harper, Claude Dauphn, president of the Federation of Canadian Municipalities, urged the federal government to help address the shrinking supply of affordable housing.
“Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” Dauphin wrote.
But all bets are off if the gridlock in the U.S. Congress extends past the debt ceiling deadline on Oct. 17.
If the U.S. were to suddenly default on its debt, it would “devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression,” Bloomberg reports, citing dozens of experts.
So the good news for mortgages could be short-lived indeed.
TROUBLE IN TORONTO CONDOS?
The Toronto Star reports that some buyers of pre-construction condos are struggling to get financing to close their deals.
“Some have had to walk away from deposits worth tens of thousands of dollars. Others have been forced to borrow from family — or against their principal residence — to come up with final payments on condos that lenders are no longer keen to finance,” the newspaper reports.
It’s not just a question of lenders being more cautious in today’s housing market; tighter mortgage rules brought in by the federal government last year mean many who bought condos two or three years ago now have to make larger down payments than they bargained for, the Star reports.
“This is the hardest environment I’ve seen for borrowing money in the last 10 years,” Toronto condo developer Brad Lamb told the newspaper.
Not that the housing market needs much help these days. Housing starts jumped 5.3 per cent in September, according to data released Tuesday by Canada Mortgage and Housing Corp., beating analysts’ estimates. All parts of the country saw rising starts except Ontario, where they fell 15.6 per cent.
September house sales in the two most closely-watched markets, Toronto and Vancouver, are up 30 per cent and 63.8 per cent respectively, according to those cities’ real estate boards (though there is reason to doubt those numbers).
But the housing market could see even more heating, thanks to the U.S. shutdown. That’s because, with the economic uncertainty, investors are flocking to bonds, driving down bond yields. Fixed-rate mortgage rates are tied to bond yields, somortgage rates are going to come down as a result, according to RateSupermarket’s mortgage outlook panel.
Of course the flipside of lower mortgage rates is higher house prices, and Canadian municipal leaders are getting worried about the erosion of affordability, the National Post reports.
In a letter to Prime Minister Stephen Harper, Claude Dauphn, president of the Federation of Canadian Municipalities, urged the federal government to help address the shrinking supply of affordable housing.
“Housing costs and, as the Bank of Canada notes, household debt, are undermining Canadians personal financial security, while putting our national economy at risk,” Dauphin wrote.
But all bets are off if the gridlock in the U.S. Congress extends past the debt ceiling deadline on Oct. 17.
If the U.S. were to suddenly default on its debt, it would “devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression,” Bloomberg reports, citing dozens of experts.
So the good news for mortgages could be short-lived indeed.
TROUBLE IN TORONTO CONDOS?
The Toronto Star reports that some buyers of pre-construction condos are struggling to get financing to close their deals.
“Some have had to walk away from deposits worth tens of thousands of dollars. Others have been forced to borrow from family — or against their principal residence — to come up with final payments on condos that lenders are no longer keen to finance,” the newspaper reports.
It’s not just a question of lenders being more cautious in today’s housing market; tighter mortgage rules brought in by the federal government last year mean many who bought condos two or three years ago now have to make larger down payments than they bargained for, the Star reports.
“This is the hardest environment I’ve seen for borrowing money in the last 10 years,” Toronto condo developer Brad Lamb told the newspaper.
Alternative Mortgage Lenders Get Boost From Canada’s Resilient Housing Market
Shares in three of Canada’s biggest alternative mortgage lenders look set to rise over the next year due to the ongoing resiliency of the country’s housing market.
“Alt-A lenders should continue to see enviable growth,” said Shubha Khan, an analyst at National Bank Financial. “We believe that near-term housing market risks have moderated, particularly in view of more dovish comments on interest rate policy from the Bank of Canada.”
Mr. Khan said credit quality also remains sound with mortgage delinquency rates near historical lows. He increased his price targets on Equitable Trust Inc., MCAN Mortgage Corp. and Home Capital Group Inc. and reaffirmed his outperform rating on all three names.
Equitable Trust can be expected to rise 30% over the next 12 months to $64, while MCAN will jump 22% to $16 over the same period, he said.
Home Capital Group, meanwhile, is set to climb as high as $95 – a 17% gain – after reporting solid third-quarter earnings on Wednesday after market close.
The company, down about 2% in trading on Thursday — the same day Finance Minister Jim Flaherty reinterated that rates will eventually rise — reported earnings per share of $1.90 on net income of $66.4 million compared to EPS of $1.65 on net income of $57.3-million a year ago.
“Home continues to post record earnings, with no signs of house price weakness evident in its results,” Michael Goldberg, a Desjardins Securities analyst, said in a note to clients. “We project continued earnings and dividend growth, now augmented by securitization gains.”
He said the stock’s rollercoaster performance in 2013 has been largely driven by movements in its short position, but expects that position to decline, driving the price up further. He maintained his top pick rating with a new higher target price of $93.50.
GMP analyst Stephen Boland is not so bullish, however, and left his hold rating and $86.50 price target for Home Capital shares unchanged.
“The stock has performed better than we expected entering the quarter which we believe was an anticipation of the strong results and a general sector rotation into financials,” he said. “That said, we have moved our valuation out a year but are not comfortable upgrading at this time due to the valuation.”
“Alt-A lenders should continue to see enviable growth,” said Shubha Khan, an analyst at National Bank Financial. “We believe that near-term housing market risks have moderated, particularly in view of more dovish comments on interest rate policy from the Bank of Canada.”
Mr. Khan said credit quality also remains sound with mortgage delinquency rates near historical lows. He increased his price targets on Equitable Trust Inc., MCAN Mortgage Corp. and Home Capital Group Inc. and reaffirmed his outperform rating on all three names.
Equitable Trust can be expected to rise 30% over the next 12 months to $64, while MCAN will jump 22% to $16 over the same period, he said.
Home Capital Group, meanwhile, is set to climb as high as $95 – a 17% gain – after reporting solid third-quarter earnings on Wednesday after market close.
The company, down about 2% in trading on Thursday — the same day Finance Minister Jim Flaherty reinterated that rates will eventually rise — reported earnings per share of $1.90 on net income of $66.4 million compared to EPS of $1.65 on net income of $57.3-million a year ago.
“Home continues to post record earnings, with no signs of house price weakness evident in its results,” Michael Goldberg, a Desjardins Securities analyst, said in a note to clients. “We project continued earnings and dividend growth, now augmented by securitization gains.”
He said the stock’s rollercoaster performance in 2013 has been largely driven by movements in its short position, but expects that position to decline, driving the price up further. He maintained his top pick rating with a new higher target price of $93.50.
GMP analyst Stephen Boland is not so bullish, however, and left his hold rating and $86.50 price target for Home Capital shares unchanged.
“The stock has performed better than we expected entering the quarter which we believe was an anticipation of the strong results and a general sector rotation into financials,” he said. “That said, we have moved our valuation out a year but are not comfortable upgrading at this time due to the valuation.”
Clients Less Willing To Renew Early… For Now
Following historically low lending rates, clients are less likely to opt to renew early, leaving few opportunities for independent brokers to try to entice clients to switch lenders… for now, at least.
“Clients (were) getting 2.79- 2.89 five year mortgages and there is no incentive for clients to jump ship earlier and opt to renew early,” Lee Welbanks of Verico Welbanks Mortgage Group told MortgageBrokerNews.ca. “The banks certainly have the advantage because they can renew four months out and they aren’t charging clients a penalty to renew.”
Nevertheless, clients who signed up for five-year fixed rates five years ago – and whose mortgages are now maturing — will likely look to renew, as rates are lower today than they were when they signed up for the current term.
“The variables rates are in vogue right now and we have high rate fixed rates coming out of maturity and so they’re happy to get in on an early renewal,” Welbanks said.
In many of these cases, clients are usually satisfied to stay with the original lender; leaving few opportunities to entice clients to leave. Though that shouldn’t sway brokers from trying.
“We’re trying to find the deals where the clients need more funds. I have some who like my services but, at the end of the day, clients often opt for the path of least resistance – so they choose to renew with the banks or their current lender even if they have to pay a little more,” Welbanks said. “I think the idea is that we need better incentives in order to switch clients; that may be a cash incentive for the hassle they go through, that may be other products you offer.
“It could be a myriad of things but at the end of the day, we can never stop trying, as long as we are not doing something that acts against the client’s better interests.”
And even if that fails, there is always the knowledge that the future will bring with it a leveler playing field.
“The playing field will be more level in 4.5 years because we won’t see as many early renewals. It’s a brand new deal and they have to play with whatever rates are available,” Welbanks concluded.
“Clients (were) getting 2.79- 2.89 five year mortgages and there is no incentive for clients to jump ship earlier and opt to renew early,” Lee Welbanks of Verico Welbanks Mortgage Group told MortgageBrokerNews.ca. “The banks certainly have the advantage because they can renew four months out and they aren’t charging clients a penalty to renew.”
Nevertheless, clients who signed up for five-year fixed rates five years ago – and whose mortgages are now maturing — will likely look to renew, as rates are lower today than they were when they signed up for the current term.
“The variables rates are in vogue right now and we have high rate fixed rates coming out of maturity and so they’re happy to get in on an early renewal,” Welbanks said.
In many of these cases, clients are usually satisfied to stay with the original lender; leaving few opportunities to entice clients to leave. Though that shouldn’t sway brokers from trying.
“We’re trying to find the deals where the clients need more funds. I have some who like my services but, at the end of the day, clients often opt for the path of least resistance – so they choose to renew with the banks or their current lender even if they have to pay a little more,” Welbanks said. “I think the idea is that we need better incentives in order to switch clients; that may be a cash incentive for the hassle they go through, that may be other products you offer.
“It could be a myriad of things but at the end of the day, we can never stop trying, as long as we are not doing something that acts against the client’s better interests.”
And even if that fails, there is always the knowledge that the future will bring with it a leveler playing field.
“The playing field will be more level in 4.5 years because we won’t see as many early renewals. It’s a brand new deal and they have to play with whatever rates are available,” Welbanks concluded.
How To Beat Banks At Renewal Time
The challenges of the traditionally slow winter season is now being compounded by banks contacting past clients 120 days ahead of renewal – and just out of reach of the brokers’ 90 day rate hold.
“I’m relatively new so I still don’t get those return clients with renewals (and) this time of year in Ottawa it’s slow because people don’t want to move in in December and January,” Nick Bachusky told MortgageBrokerNews.ca. “The banks are getting to the clients first – 120 days out, the managers get an automatic message saying whose renewals are up and then the specialists contact the clients with the best rates. It’s tough for brokers to compete because we can only offer at 90 days out.”
The banks tend to have the rate advantage and it can be difficult to sway a previous bank client to move the mortgage to the brokerage side.
“The banks go on floors: they don’t make revenue on it, they make more on volume (and) if it’s a war on rates, the banks will usually win it,” Bachusky said. “They can go to upper management and get rate matches and clients are more willing to stick with the bank because no new paperwork has to be done and no new rules need to be discussed.”
However, one way to get a leg-up on the competition is to focus on other areas of wealth management and providing customers a more holistic financial services approach.
“For renewals, what we’re finding, is that with our client base we offer more than just mortgage services,” Patrick Briscoe of Mortgage Alliance told MortgageBrokerNews.ca. “We have a little bit more client dedication in the fact that they come to us first to get an opinion on what they should do.”
Briscoe believes it can be difficult to compete on rate but it’s this other services that help keep the client, in many cases.
“We have seen competition from the banks for sure as they compete for rates, but at the same time by offering other services we have been able to maintain the client,” Briscoe said. “We do investment services, life insurance and income tax preparation.”
Perhaps this approach is the best way to stay competitive during this important time of the year.
“It’s nice to have a niche in what we’re doing but we think it’s necessary for brokers to have the same sort of model if they want to remain competitive,” Briscoe said.
“I’m relatively new so I still don’t get those return clients with renewals (and) this time of year in Ottawa it’s slow because people don’t want to move in in December and January,” Nick Bachusky told MortgageBrokerNews.ca. “The banks are getting to the clients first – 120 days out, the managers get an automatic message saying whose renewals are up and then the specialists contact the clients with the best rates. It’s tough for brokers to compete because we can only offer at 90 days out.”
The banks tend to have the rate advantage and it can be difficult to sway a previous bank client to move the mortgage to the brokerage side.
“The banks go on floors: they don’t make revenue on it, they make more on volume (and) if it’s a war on rates, the banks will usually win it,” Bachusky said. “They can go to upper management and get rate matches and clients are more willing to stick with the bank because no new paperwork has to be done and no new rules need to be discussed.”
However, one way to get a leg-up on the competition is to focus on other areas of wealth management and providing customers a more holistic financial services approach.
“For renewals, what we’re finding, is that with our client base we offer more than just mortgage services,” Patrick Briscoe of Mortgage Alliance told MortgageBrokerNews.ca. “We have a little bit more client dedication in the fact that they come to us first to get an opinion on what they should do.”
Briscoe believes it can be difficult to compete on rate but it’s this other services that help keep the client, in many cases.
“We have seen competition from the banks for sure as they compete for rates, but at the same time by offering other services we have been able to maintain the client,” Briscoe said. “We do investment services, life insurance and income tax preparation.”
Perhaps this approach is the best way to stay competitive during this important time of the year.
“It’s nice to have a niche in what we’re doing but we think it’s necessary for brokers to have the same sort of model if they want to remain competitive,” Briscoe said.
Flaherty: House Prices A Worry, But No Mortgage Crackdown For Now
OTTAWA - Finance Minister Jim Flaherty is taking on the responsibility of averting a housing bubble in Canada that could destabilize the economy, adding he will speak to those in the business to try and keep a lid on rising home prices.
With the Bank of Canada essentially taking itself out of the game by signalling interest rates won’t be raised for some time, Flaherty said Monday after meeting with about a dozen economists that it falls on his department to ensure the market is stabilized.
"It does fall to the Department of Finance to do anything if we’re going to do anything because there’s basically no room for the Bank of Canada to move," he said.
"Some of the economists suggested I have some conversations with people in the building industry because what we’re seeing in certain parts of the country (is) a re-acceleration of housing prices. I do speak regularly to people in the business and I’m going to do more of it now."
Flaherty said he has no intention of acting at the moment, but said he was keeping an eye on the market to see if the current uptick in sales and prices is temporary or the beginning of another hot run.
Most economists see the market slowing after the recent resurgence, including the Bank of Canada. But the central bank also cited the “renewed momentum” as one of three domestic risks to the economy in its October monetary policy report.
"This (the resurgence) would provide a temporary boost to economic activity, but could exacerbate existing imbalances and therefore increase the probability of a correction later on," the bank said. "Such a correction could have sizable spillover effects to other parts of the economy and to inflation."
The minister has been active in the housing market throughout his tenure, at first easing rules but more recently clamping down as Canadians took on ever-increasing debt levels to buy real estate.
The latest measure, which came in July 2012, was followed by a slump in sales and a slowdown in price gains. But the market began picking up again during the summer, particularly in Toronto and Vancouver, with the average home price hitting a new record high of almost $386,000.
Home prices are not Flaherty’s only worry.
The minister told reporters he remains focused on trying to eliminate as much as possible the price gap between the United States and Canada that one recent report pegged at about 10 per cent.
Flaherty said he has been meeting with CEOs of the country’s major retailers to ask for explanations as to why prices for the same items remain elevated in Canada, adding that he is not altogether persuaded by the answers he has been given.
"There are some companies that look at Canada as a relatively small market that is relative well off, (with a) large middle class, and, ‘Let them pay a little more, and they’ll pay it.’," he said of merchant attitudes.
However, Flaherty said he will wait until the results of a study being conducted by the market research firm Nielsen before deciding if anything needs to be done.
"It becomes an interesting question of what the government can do about that … there are always persuasive techniques that can be used to nudge people in the right direction," he said.
The minister has deployed the approach before.
Earlier this year he personally phoned the Bank of Montreal to “persuade” it to raise its five-year fixed mortgage rate after BMO cut it to 2.99 per cent. Flaherty said he was concerned about a race to the bottom on rates that would trigger unsustainable borrowing.
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