Private-sector economists are pressing Finance Minister Jim Flaherty to keep a closer eye on Canada’s housing market in light of persistently low interest rates.
The concern was expressed during a closed-door meeting on Monday with the minister ahead of the federal government’s fall economic update, which is expected in early November.
After the meeting, Mr. Flaherty said that he has no intention of interfering in the housing market “at the time being” but that he plans to meet with developers to learn more about what could be fuelling the sector’s recent steam.
“I do speak to people regularly in the business and I’m going to do more of it now, because I want to ensure that this isn’t just a temporary bubble,” Mr. Flaherty said.
“One theory is that we’re pulling forward housing sales by the reality that eventually interest rates will go up, so that some people who perhaps should be waiting a bit are going ahead and buying, but this is speculation and we’re going to have to look into it more. But I have no intention of interfering in the market at the time being.”
According to the Multiple Listing Service, the average price of houses sold in September was $385,906 nationally, up 8.8 per cent from the same month last year.
Earlier this month, the Bank of Canada pushed out its timeline for future interest rate increases. Mr. Flaherty acknowledged Monday that as a result, any response to a hot market would have to come from his department.
“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.
In the meeting with economists, it was Canadian Imperial Bank of Commerce economist Benjamin Tal who suggested to Mr. Flaherty that he would like to see more communication between Ottawa and housing developers.
“It’s crucial at this point in the game to have much better communication between the people who make decisions and the people who actually dig,” Mr. Tal said in an interview.
Mr. Tal and other economists told Mr. Flaherty that they feel it’s too early to decide whether the strength the housing market has shown in the last few months will last. “I said that we have seen an acceleration in the housing market, and at this point nobody knows if it’s real or if it’s just borrowing activity from the future,” Mr. Tal said.
Toronto-Dominion Bank economist Sonya Gulati said Mr. Flaherty appears to be trying to assess whether the recent housing market activity is sustainable.
“There is no conclusion on that. I think it is very much a wait-and-see over the next couple of months, to determine whether activity tapers or it is an actual re-acceleration,” Ms. Glati said.
While housing was a hot topic at the meeting, much of the session was dedicated to allowing the economists to weigh in on macroeconomic forecasts that will make their way into the fall economic update, and will ultimately influence the next federal budget.