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economy lab

Bank of Canada Governor Mark Carney, left, and Finance Minister Jim Flaherty take part at an event to officially issue the new $20 bill in Ottawa on Nov. 7. Housing starts have declined in three of four months since Mr. Jim Flaherty tightened mortgage rules in July.CHRIS WATTIE/Reuters

Canadian builders started work on new houses in October at a rate that would produce 204,107 units over a year, a sharp deceleration from a year earlier, when houses were being built at an annual rate of 223,995.

Housing starts now have declined in three of four months since Finance Minister Jim Flaherty tightened mortgage rules in July.

Does that mean the government's macro-prudential policy is working? Will the Bank of Canada stop worrying about a housing-induced financial crisis? Has the bubble deflated?

Answers to those questions, in order: still too soon to say; no; and no.

Bank of Canada Governor Mark Carney was asked about the fast-decelerating rate of housing construction at a press conference in Montreal on Thursday. He offered a small amount of insight on how the central bank is gauging the housing bubble that might not be widely known.

There are varying estimates of the pace of household formation in Canada. BMO Nesbitt Burns says it's about 180,000 per year. The central bank thinks it's about 190,000, Mr. Carney said Thursday.

Whichever number, it's still less than the current rate at which houses are being built. That suggests a bubble, which means the Bank of Canada remains on guard.

And it could remain so for a while yet. Canada Mortgage and Housing Corp. said earlier this week that it expects housing starts in the range of 177,300 units to 209,900 units. That's just fast enough to make the men and women charged with avoiding a foreclosure crisis uncomfortable.