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The federal government is watching the housing market closely and is ready to intervene if needed, but is not about to do so now, Finance Minister Jim Flaherty said on Tuesday, noting he saw indications of softening in the market.
He was speaking to reporters after the Bank of Canada said that very favorable credit conditions were expected to buttress housing activity, and that Canada's ratio of household debt to income was expected to rise further.
Asked if he had expressed concern with the banks about record-low mortgage rates, he said: "I have frequent discussions with the bank leaders including some of them yesterday in Toronto."
"There's some indication of some softening in the housing market in Canada recently. We watch the housing market carefully and we are prepared to intervene if necessary. Having said that, we're not about to intervene in the housing market now."
Data this week showed existing homes sales rose only slightly in Canada last month, while the average sale price declined, offering further evidence the once hot market is cooling.
Canada's housing sector, which did not experience the subprime mortgage boom and bust seen in the United States, played a key role in lifting the economy out of recession as ultra-low interest rates drove sales and prices higher.
But policymakers have voiced fears the market's post-recession boom, combined with a long run of low lending rates, could create an asset bubble. The government tightened mortgage rules several times to cool the market.
Cautioning consumers, Flaherty reiterated on Tuesday that households must not assume interest rates will remain low for a long time.
NO UK-STYLE BUDGET
Flaherty plans to introduce cuts to departmental spending in his annual budget, expected to be unveiled in February or March, but said it would not be severe.
"The budget is about economic growth and jobs. If you want to see an austerity budget, go to the United Kingdom...a country with a very, very serious fiscal situation. That's not Canada. Our purpose is to ensure that we have a balanced budget in the medium term and that we have long term stable, solid fiscal realities in Canada," he said.
Earlier in the day, the Bank of Canada held rates and said that the economic outlook was largely unchanged but the global forecast was worse.
"I'm relatively pleased that we're seeing some consistency in economic growth, not only in Canada now but some positive indications in the United States. This provides some comfort," Flaherty said.