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BANK of CANADA WARNING

The Bank of Canada is warning of an impending housing price correction, putting Canadian mortgage holders at risk. In a four-part series of papers, economists at the bank said a drop in home prices could also impact overall consumption and the Canadian economy. In one of the reports, authored by Brian Peterson and Yi Zheng, the bank cautioned that the risk for fluctuations in house prices has “increased markedly.” The authors noted that house prices have risen sharply in most parts of the country over the past decade, with house prices reaching a historically high level in relation to income. The percentage of household debt to income has risen from 110% in 1999 to 153% currently. “These facts (rising debt and house prices) are interrelated, since rising house prices can facilitate the accumulation of debt,” said guest editor Graydon Paulin, introducing the four papers. “Households could therefore experience a significant shock if house prices were to reverse.” The bank also sugges

CANADA URGED TO TIGHTEN MORTGAGE RULES

The Canadian Press Date: Thursday Feb. 11, 2010 6:56 AM ET OTTAWA — The federal government should avoid major surgery and make only minor adjustments to deal with fears of overheating in Canada's housing market, a number of leading economists said Wednesday. Federal Finance Minister Jim Flaherty and the Bank of Canada have expressed concern that Canadians may be assuming too much debt in home purchases, debt that could rebound on them when interest rates rise. But some solutions being floated in advance of Flaherty's upcoming March 4 budget -- doubling the minimum down payment to 10 per cent, or reducing the maximum amortization period from 35 to 30 years -- could do more harm than good, the economists said. "We want some sort of micro-surgery, not (taking) a pickaxe to the problem," said Avery Shenfeld, chief economist with CIBC World Markets. Bank of Nova Scotia economist Derek Holt said such radical surgery could cause home prices to crash and shake confidence in t