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Scotiabank president and CEO Rick WaughPAUL DARROW/Reuters

Canada's housing market is "at worst" destined for a soft landing, the head of one of the country's largest banks predicted Tuesday.

Speaking in Toronto, Bank of Nova Scotia chief executive officer Rick Waugh said even though there is a housing bubble in Canada, he doesn't expect the residential real estate market to crash.

"What we see now is probably, at worst, a soft landing," Mr. Waugh told reporters after a speech to the Toronto financial community.

"The economy is strong enough and diversified enough that the impact will be handled accordingly without the risks of a bubble – of an extreme bubble. There is a bubble."

Mr. Waugh's comments struck a more optimistic tone than bank executives were taking earlier this year, amid fears of an overheating housing market, particularly in Vancouver and Toronto. The federal government stepped in this summer to tighten lending rules, and restrict the length of mortgages to 25 years, in an effort to cool the market and avert a crash.

On Tuesday, signs emerged that those changes are having an impact. Sales reported through the Multiple Listing Service (MLS) system fell 5.8 per cent last month across Canada, compared to July. It was the largest month-over-month decline in two years. At the same time, the MLS Home Price Index rose 4 per cent compared to a year ago, which was the smallest increase in more than a year.

Mr. Waugh, who runs Canada's third-largest bank by assets, said such data are within what his bank expects to happen in the market.

"The numbers we are seeing now are really not a huge surprise," Mr. Waugh said. "They are well within our expectations, let's say 10 per cent in sales volume, and 10 per cent in prices."

Of the slowdown in the market, he added: "This is happening. It is happening."

His comments came after he spoke on sound risk management in the banking sector, a particularly important topic given the uncertainty hanging over the financial world in Europe. He said Scotiabank has focused over the past few years on limiting its exposure to Europe, amid the euro zone's fiscal crisis.

The efforts to fend off defaults in countries like Spain and Italy, and to get Europe stabilized, appear to be working, Mr. Waugh said. However, they are taking a lot longer than they should have.

"Unfortunately it's been much too slow. There's a lot of knowledgeable people who have a pretty good idea of what needs to be done," Mr. Waugh said. "Unfortunately, because of the political [climate] and structure of the euro, it's gone on for 18 months or two years too long."

"The [European Central Bank] does look to have the support of its political leaders, which is a very healthy sign. So we're starting to see what I would say for the first time in a long time, those seeds of leadership starting to go into focus."

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