Finance Minister Bill Morneau says rising home prices in Toronto and Vancouver are supported by low unemployment and higher incomes, but acknowledged the government remains "very focused" on monitoring the Canadian housing market.
The minister's comments come as some Bay Street leaders are expressing growing concern over the Toronto housing market in particular.
Royal Bank of Canada CEO Dave McKay said last week that he is increasingly concerned about the Toronto market and that the city may need to consider adopting a tax on foreign buyers along the lines of the one now in effect in Vancouver. Meanwhile, Bank of Montreal chief economist Doug Porter has said that it is time to acknowledge the Greater Toronto Area is in the midst of a housing bubble. Other financial-sector executives said this week that Ottawa should take more time to monitor the situation.
Speaking to Columbia University students during a visit to New York Tuesday ahead of a Wednesday stop in Washington, Mr. Morneau weighed in with his thoughts on the two housing markets that continue to attract concern.
"We continue to be very focused on thinking about how we can manage what is peoples' most significant investment. And we do watch the level of indebtedness, in particular around housing," said Mr. Morneau. "We have strong underlying markets in the places where the housing markets have been strong. So in Toronto and Vancouver, unemployment is lower in those two places than it is in some other places. Incomes are higher. The economy is doing better. So there are underlying reasons for the housing markets to do better and we'll continue to monitor, to work with provinces and municipalities who have an important role to play here to manage what we see [as] a challenge, but not one that isn't manageable."
The minister's comments represent a continuation of the government's wait-and-see message as it monitors the housing market to see how recent tightening measures over the past year have affected the sector.
The government made several changes to the housing market in October. The changes included an expanded mortgage stress test that requires home buyers with mortgages insured by the Canada Mortgage and Housing Corp. to qualify not just for the negotiated mortgage rate, but also for the Bank of Canada's five-year fixed posted mortgage rate, which is usually higher.
Ottawa also moved to restrict government-backed mortgage insurance to situations where the amortization period is 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property is owner-occupied.
Another change requires tax filers to disclose the sale of a primary residence. Any capital gain would remain tax-free but the disclosure is meant to discourage people from falsely claiming the primary residence exemption when flipping investment properties.
Finally, the government launched consultations on lender risk sharing. The proposal would require mortgage lenders to take on more of the risk in the event of a insured mortgage default.
Mr. Morneau's first intervention in the Canadian housing market occurred in December, 2015, when he announced a doubling of the minimum down payment for insured mortgages to 10 per cent from 5 per cent for the portion of a home's value from $500,000 to $1-million.
In a conference call Tuesday with analysts, Bank of Nova Scotia CEO Brian Porter said market activity in the coming months will need to be watched closely.
"We've been supportive of the changes that the government has made to the mortgage market. I think we're going to need some time to see those take hold, and we'll see that through the spring mortgage season," he said. "This is a complicated issue. We're concerned from the perspective that trees don't grow through the sky and markets will correct at some stage here."
With a report from James Bradshaw in Toronto