“Over time, I don’t think it’s essential that a government financial institution provide mortgage insurance in Canada. I think what’s key is that mortgage insurance is available at a reasonable cost in Canada. I think there is a role to regulate but whether we, the Canadian people, have to be the owners and shareholders of a financial institution to do this is a question. I don’t think it’s essential in the long run.”

He offered no timetable on when the government could get out of mortgage default insurance business, just offering it up as a possibility. “We have a list of Crowns, Crown agencies that are being reviewed,” said Mr. Flaherty.

In a wide-ranging discussion on the housing market, he said he has no plans to increase CMHC’s current $600-billion loan limit, ruled out any possibility of regulating foreign real estate investment and made it clear his focus is on the governance of Crown corp. which controls about 75% of the mortgage default insurance business in the country.

“For some time now I’ve had concerns about the large commercial role that CMHC now plays. CMHC has become a significant Canadian financial institution. As you know, historically it was created with a mandate post-war to advance housing in Canada. It’s become much more that.”

The finance minister moved this week to tighten control of CMHC, placing it under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions. Previously, it fell under the watch of the Department of Human Resources and Skills Development.

The shift comes with CMHC closing in on the $600-billion limit the government has for how much of its portfolio will be backstopped by the taxpayer. Three years ago it was $450-billion.

By law, consumers must buy mortgage default insurance if they have less than a 20% down payment on a home and are borrowing from a federally regulated financial institution.

But CMHC has not been insuring just those loans, it has agreed to step in and insure loans — with the premiums paid by financial institutions — for lower-ratio mortgages, or what is called “portfolio” or “bulk insurance.”

He said the head of OFSI will now have the power to look at the books of CMHC the way she looks at the books of other private financial institutions in Canada. Already, the government has placed the deputy minister of finance on the board of CMHC.

“We have quite a bit of information about what the banks do and don’t do. [Superintendent] Julie Dickson had to go to some of them in the last year and say ‘you must ensure that your board policies on residential lending mortgages are carried through,” he said. “She’s quite a strict supervisor which is good for our country.”

OSFI has already been looking into CMHC and established one of the key issues for the organization is governance. “OFSI are certainly of the view there are necessary governance improvements we can do,” said Mr. Flaherty.

He made it clear there are no plans to extend CMHC’s $600-billion limit. “For a while,” said Mr. Flaherty, about how long the Crown corporation would have to exist under that limit. It was at $541-billion at the end of the third quarter of last year but business has slowed as the agency culled its portfolio business.

Mr. Flaherty’s own opinion on the housing market is that has been fuelled by low interest rates which he says he does not control. “Cheap money,” he said, noting he did talk to the banks about being unhappy about their mortgage rate wars earlier this year which had reduced the rate on a five-year closed mortgage to below 3% — an all-time low.

As to whether the market has been in part fueled by foreign buyers, as many in the real estate industry have suggested, Mr. Flaherty said his government will not get involved in that aspect of the market. “No,” he said, pausing to emphasize the point. “I don’t think there is [a role]. They key in housing from my point of view is to get the best information on housing.”

Posted in: News  Tags: Cmhc, Jim Flaherty

“It is important to note the many positive features of the Canadian residential mortgage market,” writes CAAMP in its official response to OSFI‘s draft on Residential Mortgage Underwriting Practices and Procedures. “This is something that is noticeably absent from the OSFI Draft Guideline B 20 Discussion Paper on mortgage underwriting.”

While CAAMP supports a thorough underwriting structure for residential mortgages, it cautions the regulator from going too far in five areas:  loan documentation; debt service charges; loan-to-value ratios; HELOCs; and down payments.

For example, while OSFI is effectively stumping for greater loan documentation and underwriting at renewal, CAAMP, like consumer advocacy groups, is concerned those plans would actually compromise Canadian homeownership, not bolster it.

“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” reads the response sent this week.  “If not, homeowners who have been in compliance may no longer qualify.

“This would result in a number of properties hitting the market at the same time thereby driving down prices.”

Broker eyebrows have also been raised by the OSFI suggestion it wants lenders to consider a borrower’s age in relation to retirement during the underwriting process.

“Mortgages in Canada are underwritten at the time of application,” writes CAAMP. “Underwriters and lenders consider income, including past income, credit score and other important factors such as location of the property and its value.

“CAAMP recommends a system of ‘best practices’ and best efforts in this regard. Such requirements should not be set in stone and CAAMP would be pleased to assist in developing such a best practices check list.

The analysis reflects arguments being offered by brokers across the country, fearful a crackdown on all five fronts would simple disrupt a mortgage underwriting system that is very much the envy of the world.

Canada’s banking system is often lauded for being one of the world’s safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada’s major lenders were in a far worse position during the downturn than previously believed.

Macdonald examined data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.

It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada, and also to seven per cent of Canada’s gross domestic product in 2009.

The figure is also 10 times the amount Canadian taxpayers spent on the auto industry in 2009.

“At some point during the crisis, three of Canada’s banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company,” Macdonald said.

“Without government supports to fall back on, Canadian banks would have been in serious trouble.”

During October 2008 and June 2010, the banks combined to report $27 billion in profits on their balance sheets.

CMHC mortgage program aided banks

One of the most well-known ways in which policymakers helped the banks during the crisis is through a $69-billion CMHC program whereby the housing agency took mortgages off the balance sheets of big Canadian banks. In contrast with other support facilities, all of the funds granted by the CMHC were through selling assets (in this case mortgages) to the housing agency. They were not funds that had to be paid back.

The CMHC has provided the aggregate total of how much was given out, but has yet to release specifics on which banks sold how much to them, and when, the CCPA says.

When asked for comment in reaction to the CCPA report, the Canadian Bankers Association noted that the $69 billion that Canada’s big banks sold into the CMHC program is in fact only 55 per cent of what was allocated for the program.

“Many of the mortgages were already insured and therefore, created no additional risk for the government,” the CBA noted in an email to CBC News. The CMHC estimates that by the time the program is wound up, it will have generated $2.5 billion in profit as those mortgages are paid off, the bankers’ group noted.

Calling the CCPA report “completely baseless,” Department of Finance spokesperson Chisholm Pothier noted that the mortgage program has already generated more than $1.2 billion in net revenues for the CMHC’s coffers.

But Canadian lenders also dipped into a program set up by the U.S. Federal Reserve aimed at providing cash to keep American banks afloat. CIBC and BMO took almost $3 billion each out of the fund, RBC and TD took out $8 billion and Scotiabank drew down almost $12 billion, the CCPA report found.

‘These funding measures were not put in place because banks were in financial difficulty.’—Canadian Bankers’ Association

That data came from the U.S. Federal Reserve, which released it publicly. But Macdonald’s analysis found that Canadian banks got a comparable amount — $41 billion — from Bank of Canada facilities, an agency that has been far less transparent in sharing information.

“Despite Access to Information requests for the data, the Bank of Canada refuses to release it,” the CCPA report states.

“The federal government claims it was offering the banks ‘liquidity support,’ but it looks an awful lot like a bailout to me,” says Macdonald. “Whatever you call it, Canadian government aid for the country’s biggest banks was far more indispensable than the official line would suggest.

“The support for Canadian banks was much more substantial than Canadians were led to believe,” Macdonald said.

The Canadian Bankers Association disputes the notion that the funds in question were any sort of bailout, arguing they were routine transactions aimed at keeping the financial system liquid.

“These funding measures were put in place to ensure that credit was available to lend to businesses and consumers to help the economy through the recession,” the CBA said. “These funding measures were not put in place because banks were in financial difficulty.”

Since the start of the recession, the CBA notes 436 U.S. banks have failed. No Canadian financial institution went under, but Canada’s banking sector was hit by an overall crisis of confidence in the banking sector that caused some of the banks’ normal lending sources to dry up, the CBA says.

Canadian banks get about two-thirds of their funding from consumer and business deposits, but the other third comes from credit markets.

“It was these markets that were seizing up. Funding was less available,” the CBA says. “Canadian banks continued to lend and increased their lending after some non-bank lenders pulled out of the Canadian market.”

While some of the funding came from government sources such as the Bank of Canada, the bankers’ association points out that the central bank itself says Canadian banks needed less official central bank liquidity support than their foreign counterparts.

“The credit was extended at competitive interest rates to protect taxpayers,” Pothier said. “Financial institutions accepting this credit paid interest on the loans.”

To show the scale of the funding, the CCPA report contrasted the total value of the support Canadian banks took against the bank’s total value at the time. Under that comparison, CIBC received $21 billion in support — almost 1.5 times the value of the company at the time. BMO maxed out at $17 billion or 118 per cent, Scotiabank peaked at $25 billion or 100 per cent of its value, while TD and RBC maxed out at $26 billion and $25 billion — good enough for 69 and 63 per cent, respectively, of the total value of those companies at the time.

“It would have been cheaper to buy every single share in these companies,” Macdonald said.

But the CBA disputes those numbers too, saying comparing a bank’s value to the level with which it participated in a liquidity program aimed at boosting confidence in the market is “an apples to oranges comparison as the two factors are not at all related.”

“The Oxford dictionary defines bailout as ‘financial assistance to a failing business or economy to save it from collapse,” the Canadian Bankers Association noted.

“That definitely was not the case here: not one bank in Canada was in danger of going bankrupt or required the government to buy an equity stake under taxpayer-funded bailouts.”

Blame the government subsidy known as mortgage default insurance, which ultimately makes it less risky to lend money to someone who has only 5% down compared to someone with 20%.

Consumers with less than 20% down must get mortgage default insurance in Canada if they are borrowing from a federally regulated bank. The cost is up to 2.75% of the mortgage amount upfront on a 25-year amortization but that fee comes with 100% backing from the federal government if the insurance is provided by Crown corporation Canada Mortgage and Housing Corp.

“It’s already happening,” says Rob McLister, editor of Canadian Mortgage Trends, who says secondary lenders are now offering rates that are 10 to 15 basis points higher for a closed five-year mortgage for uninsured consumers.

The crackdown on mortgage insurance announced by Jim Flaherty, the federal Finance Minister, could exacerbate the situation. Mr. Flaherty, who mused to the Financial Post editorial board last week about getting CMHC out of the mortgage insurance business, has placed the agency under the authority of the country’s banking regulator, the Office of the Superintendent of Financial Institutions.

Mr. Flaherty also put in new rules on bulk or portfolio insurance. The banks had been paying the insurance premium on low-ratio mortgages — loans with more than 20% down — because it was easier to securitize them.

However, Mr. Flaherty says those loans will no longer be allowed in the government’s covered bond program.

“Long story short, it is going to tick up rates to some degree,” Mr. McLister says. “You are seeing an interesting phenomenon where if you go to get a mortgage today, you are oftentimes quoted a higher rate on a conventional mortgage. Presumably you have less risk because you have more equity.”

It all depends on the lender. For now, the Big Six banks have kept consistent pricing between low-ratio and high-ratio mortgages.

“There is a question on whether they will continue doing that or raise rates overall to compensate for higher conventional mortgage costs,” Mr. McLister says.

Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, says competition among the Big Six banks is keeping rates down and stopping any of them from raising rates for conventional mortgages.

“When we can’t securitize a deal, there is a different cost of funds but the bank continues to offer the same rate,” said Ms. Haque, adding her bank did charge a premium for stated income deals, which usually means self-employed people, but removed the difference last week. The premium was 20 basis points.

“Looking at the competitive landscape, it was a disadvantage,” she says. “We were aiming to target pricing that was specific and for the risk appetite for that deal itself. We didn’t want one [deal] compensating for the other.”

But the banks have bigger fish to fry than just your mortgage. Those with the larger equity position in their homes may be a costlier mortgage to fund, but they also could be a future line-of-credit customers. There’s also the potential for other business such as RRSPs and TFSA, so losing a few basis points might make more sense in the long run.

Peter Routledge, an analyst at National Bank Financial, says he wouldn’t want to be an investor in a bank that approached its business any other way, though he did acknowledge there is a cost to keeping those conventional mortgages. “It’s in effect a subsidy,” Mr. Routledge says.

While banks may be eating some of the costs for people who are not eligible for a subsidy, if they continue down that road they might not be able to match the rates some of the secondary lenders are able to offer with insured mortgages.

It doesn’t sound like much, but the difference between, say, 3.14% and 3.29% on a $500,000 mortgage amortized over 25 years would be about $3,500 extra in interest on a five-year term.

It’s true that those people getting the better rate pay a hefty fee up front in insurance premiums, but they also represent a greater risk to the taxpayer. Do they deserve a better rate?

Posted in: Mortgages  Tags: Canada Mortgage And Housing Corp., Cmhc, Housing Market, Jim Flaherty

I recently sold my house and have decided to get a new mortgage through a mortgage broker rather than my bank.

So, I met with my bank last week to discuss the transaction and learned that the cost to break my existing mortgage is nearly $5,000!

Hogwash! For $5,000 I could take a three-week European vacation or contribute the annual maximum amount to my tax-free savings account.

Mortgage prepayment charges are the costs to “break” your existing fixed-rate mortgage contract.

They exist because the lender has to borrow the funds needed for the mortgage from the market. When a borrower “breaks” a mortgage, the lender is charged a “breakage cost,” which is passed along to the borrower to offset the cost that the lender is charged.

Prepayment charges are typically calculated based on the greater of three months interest penalty or interest for the remainder of the term on the amount prepaid calculated using the interest rate differential.

The interest rate differential is the difference in the interest payable on your existing mortgage versus that payable on a replacement mortgage, calculated on the time remaining in your existing mortgage term.

To determine whether it’s worth switching lenders, I’ve followed these steps:

1) Take emotion out of the equation and let math dictate the decision.

2) Evaluate whether the new lender has a more attractive interest rate, term and flexible repayment schedule (such as accelerated payments, double-up payments or annual lump sum contributions up to 10 per cent).

3) Using a free online banking mortgage calculator (available at any major bank or mortgage website), calculate the break-even rate needed to make it worth switching.

4) Confirm with the existing lender, by phone or in person, the exact fee. Present this information to the new lender and begin negotiating for either the fee to be lowered or to have the new lender pick up part of the tab.

Switching mortgage lenders only makes financial sense when a borrower can save money. In my case, I’ll save thousands of dollars (over the lifetime of the new mortgage) by making the switch, but I still have more negotiating to do before I can pull the pin on my existing mortgage.

On May 1st, Globe Investor launched a new month-long Home Buying site, packed with stories, videos and expert opinions to help readers make what for many will be the biggest financial decision of their lives.

We kicked off the month with a column from Globe Investor’s own Rob Carrick on a Vancouver couple who have decided that cashing out and renting is the smart way to go.

In this photo gallery, the Globe’s personal finance team sifted through MLS listings across the country (and even in the U.S.) to see what is on the market for $500,000 today.

Canadian Mortgage Trends editor Robert McLister kicked off his first in a weekly series of columns on Thursday with a look at the best – and worst – mortgage terms out there.

On Friday, the first of a weekly series from housing bear Ben Rabidoux, author of The Economic Analyst blog, looked at whether it makes more sense to rent than buy at the moment.

We’re also trying something new with this special section on Home Buying. We’ve added community bloggers to our coverage – a group of readers who will blog about their personal experiences searching for homes in three hot urban real estate markets.

We have a 33-year-old woman who has a $500,000 budget to spend in the Vancouver area, a couple who have just moved from Halifax to Winnipeg and a 41-year-old man who has a $750,000 budget in the Toronto market.

We will be publishing new material all month, so come back and check out our site frequently.

Thanks for visiting!

Roma Luciw, Personal Finance web editor

For tips, stories, videos and live chats about what’s going on in the real estate market, check out the Globe’s Home Buying section for daily updates

Chris Vale (R) his wife Keli Hines and son Austin, 4 at their home in Oshawa. Tracy Hanes/For the Toronto Star

When Chris Vale and his wife Keli Hines bought a home in Oshawa, they arranged a mortgage through an in-house firm their real estate agent’s company had.

“We were told, ‘Here’s the rate and here’s what you pay,’ ” Vale recalls of the transaction, which took place several years ago.

Then Vale met mortgage broker Marshall Spencer and got to learn what a broker could offer. When their mortgage came up for renewal three years ago, he and Hines used Marshall, who found a mortgage for them at two per cent

lower than the posted bank rate.

Vale owns an Ajax web-design company.

“Marshall explained a lot of things to us, such as out clauses and penalties. It really set the path for finding the mortgage that was going to work for us,” says Vale. “When we had questions, we could pick up the phone and get answers from the same person every time. Having that personal one-on-one relationship was important.”

Related: Our $18,000 home-closing shock

Albert Collu, president of Independent Mortgage Brokers Association (IMBA) of Ontario and president and CEO of Argentum Mortgage and Finance Corp., says one of the biggest differences between a mortgage broker and a bank lender is the range of choice.

“Imagine going to the grocery store and down the cereal aisle all you see is one brand of cereal. When you walk into a bank, the bank is predominantly focused on moving its own products and a lending officer or branch employee can only offer one brand,” says Collu. “With a broker, it’s like you are going down the cereal aisle and a huge variety of different brands.”

Brokers deal with as many as 30 or 40 different lenders, including banks, credit unions, large institutions that only offer mortgages, and small, private lenders, says Collu. “That provides flexibility as different lenders have different appetites for certain loans. We are able to be more nimble than the bank.”

While some Canadians like to use mortgage brokers, there are advantages to dealing with your bank directly, according to the Canadian Bankers Association.

Related: Hire a real estate agent or go it alone?

Many customers value the relationship that they have with their bank and often have other personal banking products and services there (such as chequing accounts, credit cards, and investments), as well as a mortgage, so this provides ease in managing all accounts and personal financial needs within one institution, says the CBA.

Banks also have a variety of resources such as mortgage specialists, booklets, calculators and comprehensive websites and many have staff who will meet the customer at home, according to the CBA. Consumers can also negotiate lower rates than the posted rate at banks and can choose from various payment options and mortgage solutions.

Collu says mortgage brokers are specialists who have in-depth knowledge about mortgages, while most bank employees may have limited or very general knowledge. Collu says IMBA advises consumers to call a broker for a consultation, before renewing a mortgage. There’s no charge and no obligation, he adds

“Most consumers don’t know what a mortgage broker does,” says Collu. “Thirty years ago, people would say, under their breath, that they had to go to a mortgage broker. It was almost an embarrassing thing to admit.”

The field has evolved since then, says Collu. Brokers must complete required courses, write exams, and be mentored and trained at an established brokerage.

Above all, they are required to be licensed with the Financial Services Commission of Ontario which can provide consumers with a list of licensed brokers and lists those that are not. It also handles consumer complaints. If your mortgage is for $300,000 or less, the mortgage brokerage cannot accept, or require you to make, an advance payment or deposit, for any expenses or services that will be offered by the brokerage or one of its employees.

There is usually no fee to use a mortgage broker.

“If only I had dime for every time someone has said, ‘Well, mortgage brokers charge fees,” says Collu. “Generally, that’s not true, and we are not conduits to loan sharks.

“How does a broker get paid? It works the same as an insurance agent: We are paid a commission by the institution we arrange a mortgage with.”

Related: Court denies realtor $11,000 commission

Collu says about eight out of every 10 people renew their mortgage with their bank, and, of those, about 70 per cent sign back at the posted rate, while a broker could get them a rate at 1 per cent to 1.5 per cent less, or even lower, and secure terms that suit their needs.

While anyone can use a mortgage broker, Collu says many clients are “credit-challenged people, looking for prime rates,” those requiring complex financing, people building a house or the self-employed, many of whom can find it difficult to qualify for a mortgage through a bank.

“I can save people time and time is the new currency,” says Spencer, who operates Prime Rates mortgage brokerage in Whitby. He started his career working in a bank. “A mortgage broker can shop the whole mortgage market so you don’t have to.”

Spencer says brokers “don’t have to push a particular product or cross-sell.

“I am not going to try to convince you to open a new savings account or buy mutual funds.”

A broker’s commission is not based on what the interest rate of the mortgage is, so they will try to get clients the lowest rate possible, he adds.

To determine the best mortgage for clients, mortgage brokers will typically ask them questions about where they want to be in five years, if they are planning to change jobs, whether their family will grow or if they need income from a rental unit in their house.

“A lot of people only see the interest rate and are distracted by that. When arranging a mortgage, don’t stop your questions there. Ask what privileges you have, if you can increase payments by an extra 10 per cent or 20 per cent or can make lump payments without penalty,” says Spencer.

Vale and Hines are pleased with their decision to use a brokerage, not a bank.

“For as long as we need a mortgage, we’ll be going the broker route,” says Vale.

Mortgage Broker facts

 • The mortgage broker industry is governed by the Financial Services Commission of Ontario. It licenses mortgage brokers, agents, brokerages and administrators and its website has a wealth of information for consumers, including a list of licensed brokers, information about law governing mortgage brokers and how to file a complaint. There are also brochures on mortgage-related topics that can be downloaded.

 • The Independent Mortgage Brokers Association of Ontario (IMBA) provides education and professional development for mortgage brokers and provides consumer information about brokers’ code of conduct, FAQs about the industry and a listing of licensed brokers in the province.

An independent broker isn’t tied to a financial institution.

I sold my property last week and I’m in a mad scramble to find a new home. With my wish list in hand and a pre-approved mortgage under my belt, I’m confident I’ll eventually find what I’m looking for.

Much to the chagrin of my financial planner, a bank employee, I’ve decided to use an independent mortgage broker rather than getting my mortgage from the bank. Based on my research, mortgage brokers often have access to better rates and more flexible repayment terms.

Mike, my broker and an old pal from university, walked me through the pre-approved application process and reviewed my commitments to the bank where my existing mortgage resides. He then shopped my application around to multiple vendors and came back less than 24 hours later with a rock-bottom rate.

An independent mortgage broker isn’t tied to any financial institution and instead works on your behalf, rather than the lender.

Because they are not employees of a lending institution, mortgage brokers are not limited in the products they can offer you.

They can seek out the best mortgage options to suit your specific situation, from a multitude of lenders — banks, trusts, private companies and insurance firms. Their primary role is to provide unbiased mortgage options and advice to clients.

In most cases, mortgage brokers are free. When the broker matches a lender with a buyer and a mortgage is placed, the broker is paid by the lender based on size of the mortgage, not the rate.

If you’re thinking of using a mortgage broker, choose wisely. Get referrals from trusted friends or family members. Do your research in advance of meeting with them; know about current rates and structures. That way you’ll have some idea of what you’re hoping to achieve and can clearly communicate it.

I love saving money, and based on my recent first-hand experience, using a mortgage broker will save me tens of thousands of dollars.

Bank of Canada governor Mark Carney says Canada is "well into an expansion."

OTTAWA — Bank of Canada Governor Mark Carney has said again that the bank may have to raise interest rates to keep inflation in check as Canada’s economic recovery advances.

“Given the smaller output gap, given the slightly firmer underlying inflation, the possibility of withdrawal of some degree of the considerable monetary stimulus that is currently in place may become necessary, consistent with achieving the (Bank of Canada’s) 2% inflation target,” Carney said in an interview on Friday with Market News. The interview was published on Monday.

“As the expansion progresses, the possibility of some withdrawal becomes more likely, but number one, that’s always going to be guided by achieving the inflation target, and number two, this is happening in an environment of considerable global economic risk, and so it depends importantly on the evolution not just of domestic but global economic developments. So we will certainly weigh any such decision carefully.”

He said it was not necessary to be more explicit about the timing of a possible move but said that Canada was “well into an expansion”.

“The bank’s most recent estimate of the output gap is about half a percent. That puts us in very unusual company,” Carney said. “The economy in our view is growing above trend and will do so over the balance of this year. So the Canadian economy is – relative to the major advanced economies – performing well by any measure.”

The governor said he was well aware of the global risks, and added: “There are also risks domestically, and they’re two-sided.”

He said Canadian inflation expectations were “extremely well anchored”.

The bank left its key overnight interest rate unchanged at a very low 1% on Tuesday but signalled it may have to raise rates at some point.

© Thomson Reuters 2012

OTTAWA— From Wednesday’s Globe and Mail

Canadian house prices are now almost five times higher than incomes, the latest illustration of why policy makers are worried about parts of the housing market.

The average price is roughly 4.75 times the average income, Bank of Canada Governor Mark Carney said Tuesday, noting that the historical norm is closer to 3.5.

Speaking to the House of Commons finance committee, he said “valuations are firm” in some cities and segments of housing, such as Toronto’s condo market, posing “more downside risk than upside risk.”

While “extremely attractive” mortgage rates linked to exceptionally low overall borrowing costs are a key reason, he said, borrowers need to make sure they’ll be able to afford any loans once interest rates start rising.

Prices in the biggest housing markets, Toronto and Vancouver, are moving in opposite directions of late, something economists say could keep the overall sector from overheating and, therefore, prevent a nasty drop in prices that ripples across the country. Still, Mr. Carney has indicated he is thinking about when to start raising interest rates, and higher rates will likely mean a housing correction as buying a home becomes less affordable.

Mr. Carney warned again last week that the use of home-equity lines of credit to finance consumption exploded over the past decade as prices rose, suggesting that if valuations were to drop sharply, millions of families would lose the confidence and capacity to keep spending.

On Tuesday, he said Canadians are absorbing his “message of prudence and caution.”

The annual growth of household debt – now 153 per cent of disposable income – has slowed in the past two years to around 4 per cent from almost 10 per cent, he told lawmakers. Also, more and more borrowers are taking on fixed-rate mortgages instead of variable-rate loans, leaving them less exposed to fluctuations in interest rates.

Still, he repeated that household debt is the No. 1 domestic risk to the recovery, and reiterated that if the economy continues to improve it “may become appropriate” to lift his benchmark interest rate from 1 per cent, where is has been since September, 2010.

The delicate challenge facing Mr. Carney and other policy makers, however, is to wean Canadians from debt-fuelled purchases without erasing the consumer spending that is being counted on for more than half of economic growth both this year and next, or causing a jarring correction in housing.

“There has to be an element of prudence in balancing the pace of slowing of this phenomena, with the underlying growth of the economy,” Mr. Carney told the panel, noting that measures to tighten eligibility requirements for mortgages, and greater scrutiny of applicants for home-equity lines of credit, are helping.

“The combination of measures that have been taken and a clear-eyed perspective of Canadians, which I think they have … will do much to manage the issue.”

Still, it’s clear the central bank is crunching numbers and assessing just how much any number of scenarios could slow the housing market, consumer spending, or the economy as a whole.

When Liberal MP Scott Brison asked whether the central bank – which has been prolific over the past year in its studies and reports on housing – has explored how overvalued house prices may be, Mr. Carney simply smiled and said, “Not publicly.”