(Recasts with Poloz comments on housing market, adds byline)
By Anthony Esposito
MEXICO CITY May 4 Hefty house prices increases
in Canada's largest city are not sustainable and have been
driven in part by speculation, the head of the Bank of Canada
said on Thursday, but he declined to comment on troubled
mortgage lender Home Capital.
Central bank Governor Stephen Poloz, speaking in Mexico City
about the risks of U.S. protectionism, was asked repeatedly
about Canada's housing sector and he reiterated concerns about
signs of speculation in the hot Toronto market, which some fear
is a bubble.
"You have the ingredients for higher housing prices, but no
fundamental can give you the basis for a 30 percent increase in
price in a year," Poloz said in response to questions from
audience members and reporters.
"We're pretty sure that this is not sustainable, it's
certainly not sustainable by any of the models we've got."
He said he hoped rules the government put in place will help
calm the housing market. Ottawa has tightened mortgage lending
rules several times in recent years to cool the market and
prevent home buyers from taking on too much debt.
Asked if he was monitoring or concerned about the situation
with alternative mortgage lender Home Capital Group, which the
Ontario Securities Commission has accused of hiding fraudulent
mortgage broker activity from shareholders, Poloz said he would
never comment on an individual company.
Home Capital shares fell 12 percent on Thursday
after a regulatory hearing to investigate claims the mortgage
lender and three of its long-time executives had misled
investors was adjourned until next month.
In earlier comments to business leaders, Poloz said
uncertainty about U.S. trade policy is weighing on growth and
business investment but both Canada and Mexico can thrive by
striking trade deals with other countries.
"We know that with protectionism, everybody loses
eventually, including the country that puts the policies in
place," Poloz said in his remarks, which contained nothing new
on monetary policy or the economic outlook, adding:
"And the uncertainty around this threat of increased
protectionism is holding back growth."
With U.S. President Donald Trump determined to renegotiate
the North American Free Trade Agreement or pull the United
States out of the deal, Poloz urged political leaders in Canada
and Mexico to continue to diversify trading agreements outside
of North America.
He said work done at the bank shows a broad-based increase
in U.S. tariffs would lead to lower U.S. output after about five
years, whether or not other countries retaliate.
(Reporting by Anthony Esposito in Mexico City and Andrea
Hopkins and Leah Schnurr in Ottawa; Editing by James Dalgleish)