The correction underway in Canadian house prices is likely to persist for another two years, warns Bank of Canada Governor Mark Carney.
"We've seen the adjustment in the housing market. We think there's a bit more to come over the next couple of years," Mr. Carney told CTV's Question Period in an interview broadcast Sunday.
Mr. Carney said rapidly rising prices experienced in Canada over the past decade are "certainly not normal" and Canadians shouldn't count on home prices to be their main source of wealth gains.
"Real wealth is built through innovation, and it's gained through hard work," Mr. Carney explained in an interview taped before this weekend's G20 finance ministers and central bankers meeting in Moscow. "It's not through some magical asset inflation."
In a report last week, the International Monetary Fund estimated that Canadian home prices are overvalued by an average of 10 per cent and predicted an "adjustment" over the next five years.
Canada's housing market has been slowing since mid-2012. Housing starts and homes sales have come down, while prices appear to have peaked in many once-booming markets, such as Vancouver.
Canadians are continuing to add to their record debt levels – mainly through home mortgages and lines of credit – but the rate of increase has slowed substantially.
Canadian policy makers have "pivoted" from actively pushing homeowners to buy homes and borrow, to dissuading debt and promoting exports, said Mr. Carney, who is due to leave his job at the Bank of Canada to head the Bank of England in July.
"That's a difficult rebalancing, but what we're seeing, without question, is a very constructive evolution of Canadians' attitudes towards debt and towards the housing market," he said. "And it is moving towards a much more sustainable equilibrium."
Ottawa has tightened mortgage rules several times since 2008 to cool the market. But interest rates still remain at rock-bottom levels, as do borrowing costs.
Mr. Carney said the pace of debt accumulation has slowed to about 3 per cent a year from 10 per cent.
Mr. Carney also reaffirmed his intention to come back to Canada when his five-year term at the Bank of England is over in 2018.
"I'm a Canadian and most comfortable in this country," he said. "This is where my friends are, this is obviously where my family is. And it's just natural."
Mr. Carney rejected the suggestion that he may be remembered as Canada's Alan Greenspan – the former U.S. Federal Reserve Bank chief who many critics blame for inflating the housing bubble in that country – if there's a housing crash.
"I'm coming back, so I'll take responsibility if, if, well, that's not going to happen," he said. "I'm also coming back, so I'm here to face the consequences, ultimately."
Discussing his new job at the Bank of England, Mr. Carney said he was hired to bring an outsiders' view to reforming the British central bank and the European financial system.
"The value of me going there to the institution is to bring a different perspective," he said. "To be a bit of an outsider, to help with the reform, the re-founding, of the Bank of England ... and more broadly in the U.K. and Europe about policy options to really get those economies going and fix those financial systems."