Bank of Canada downplaying housing risks

While it continues to warn about growing housing imbalances and risky mortgage lending, the Bank of Canada still believes there is only a low probability of a major housing correction happening anytime soon. That assessment looks very odd now, considering that home sales have slumped in one dangerously overvalued housing market already and prices are now falling too. New tougher mortgage rules and rising mortgage rates will only compound matters. The Bank appears to be taking some comfort in the fact that market interest rates have risen by only a modest margin and that future mortgage lending under new rules will be far less risky. But because policymakers have allowed housing to become so dangerously overvalued over the past few years, we fear that even a moderate amount of tightening in financial conditions could prove to be the proverbial trigger for a major housing correction.