Poloz defends interest rate cut, reiterates ‘no housing bubble’ stance

Bank of Canada (BoC) governor Stephen Poloz has defended his decision to cut the lending rate in January, arguing that the overvaluation in home prices are still not enough to consider Canada’s reals estate investing sector to be in a housing bubble.
The central bank recently estimated Canada’s housing market to be overvalued by 10 per cent to 30 per cent. Poloz attributed the estimate to the housing sector’s strength since the global financial crunch as well as to record low interest rates, Reuters reported.
"It would be very unusual to come through all that and not have a degree of overvaluation," Poloz was quoted as saying by Reuters during a meeting at the House of Commons finance committee. "One has that in every business cycle."
Poloz was with senior deputy governor Carolyn Wilkins on Tuesday to give more insight as to the bank's current view on the economy.
In his speech, Poloz denied fears the real estate investing sector is not in a bubble, adding that the BoC has not seen the highly speculative behaviour that is characteristic of such a scenario.
"If we were all buying a second or a third condo with confidence that it was going to rise in price, and sell it to someone else, that would be one of the ingredients you'd expect to see in a true bubble," Poloz was quoted as saying by Reuters.
Poloz also said the BoC does not see "truly runaway pricing" in Canada’s real estate investing sector, “while construction has stayed in line with demographic demand.”
Meanwhile, he described the impacts of low oil on Canada's economy as "complex," which "will take time to work their way through the economy." Other areas of the economy outside of the energy sector are doing well, he said.
"While the impact of the oil price shock is happening faster than initially expected, it does not appear to be larger than we anticipated in January," Poloz said.

More Mortgage Guide