December 10, 2013 - 7:37 AM
OTTAWA - The Bank of Canada says the risks to the country's financial system have moderated over the past six months, although it continues to present stark scenarios for the housing market and household vulnerability.
But overall, the bank says the chances of another financial crisis are not as high as they were in June, which saw the first improvement in the bank's rating of potential risks in two years.
Officially, the bank now rates overall risk as "elevated," one rung lower than the high level it had in place since December 2011. The worse risk level in the bank's rating system is "very high."
The key reason for the downgrade, it says, is that the situation in Europe appears less grave today than it did in June given that the economy has moved from recession to weak growth and the central bank there has committed to do all it must to avert a crisis.
But while conditions appear to be improving throughout the world, the Bank of Canada's governing council makes no attempt to hide its continuing nervousness about the Canadian housing sector and near-record levels of household debt.
The council says while it believes the recent spurt in housing activity to be temporary and notes that credit growth has slowed, house prices in Canada continue to be overvalued.
The bank says it continues to be particularly worried about the Toronto condominium market, which it says now has an oversupply and where the number of unsold units under construction remains at elevated levels.
If the oversupply is not absorbed by demand as units are completed over the next few years, the bank says there is a risk of a correction in prices and construction activity.
On Thursday, new data suggested that condo starts in Toronto had slowed markedly in November, which the bank would likely consider a welcoming development.
News from © The Canadian Press, 2013