Canada's housing market in for 'soft landing': IMF

Despite some signs of overvaluation, Canada's housing market is likely in for a "soft landing," the International Monetary Fund said Wednesday.

The international agency says single-family homes have been a major source of price increases, particularly amonghigh-end buyers. It notes that Ottawa's efforts to tighten the mortgage insurance market by weeding out marginal buyers have been 'broadly effective."But the IMF warns that more measures may be required.

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'Further action may be needed if household balance sheet and housing market vulnerabilities resume rising," it said.The IMF suggests that targeted actions, such as lower amortization limits for uninsured mortgages, could be implemented.

While home price appreciation has picked up speed recently, the IMF notes that strength has been driven mainly by activity in the markets of Toronto, Vancouver and Calgary. Tighter mortgage insurance rules have helped to contain price growthin other markets, it says.

IMF officials said home prices are between five and 20 per cent higher than fundamentals would otherwise suggest, with anovervaluation nationally of about 10 per cent.

"So, for us it remains a concern," the IMF'sHamid Faruqee told a news conference in Ottawa..

Rising long-term interest rates and a weaker trade picture because of slumping oil prices should lead to a "soft landing" in the housing market, the agency forecasts. It sees only a gradual increase in rates, rather than a sharp increase.

The balance of risks for the Canadian economy is "modestly" tilted to the downside, the IMF says. "Deeper downside risks to growth involve a combination of external shocks that are amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices."

Despite the vulnerabilities, however, the IMF says the risks appear "contained," at least from a financial stability perspective, noting that the Canadian economy experienced solid growthover the past year.