(Adds quotes from Schembri, details of speech, background)
By Leah Schnurr
KINGSTON, Ontario, Aug 25 (Reuters) - The risks that booming
housing markets pose to Canada and other similar economies are
being well managed by credible and effective macroprudential
policies, Bank of Canada Deputy Governor Lawrence Schembri said
on Tuesday.
Schembri, who looked at Canada, Australia, Norway, Sweden
and New Zealand, said low interest rates in the wake of the 2008
recession had helped boost the housing sector.
The Bank of Canada and the federal government have long
fretted that the hot housing market and record levels of
personal indebtedness could spark a crisis in Canada, especially
if interest rates rise.
"The resulting strength in the housing market has increased
household imbalances, but the risks stemming from these
vulnerabilities have been well managed by complementary
macroprudential policies," he said in a speech.
"The experience in these countries therefore suggests that
macroprudential policies that address structural weaknesses in
the regulatory framework are best suited for mitigating such
financial vulnerabilities," he continued.
In Canada, authorities tightened mortgage rules four times
from 2008 to 2012, cutting the maximum amortization of insured
mortgages and boosting the amount that people had to put down as
a deposit for a new house.
"Recent evidence suggests that these measures have resulted
in higher average credit scores, which have improved the quality
of mortgage borrowing," said Schembri.
The central bank said on July 15 that housing activity
should moderate in 2015 and stabilize over the next two years,
but persistent strength could exacerbate household sector
imbalances and increase the likelihood and potential severity of
a correction later on.
The bank said at the time it "continues to anticipate a
constructive evolution in the housing market".
Schembri said the bank was keeping a close eye on the
housing market. In its Financial System Review in June, the bank
said higher house prices were associated with greater levels of
household debt and also said homeowners could land in trouble if
their properties did not gain value as much as expected.
"The likely trigger for both vulnerabilities would be a
major global shock that generated a sharp increase in
unemployment and possibly in interest rates as well," said
Schembri.
(Writing by David Ljunggren; Editing by James Dalgleish)