Scotiabank Says Higher Rates Cure for Any Housing Bubble

Canadian policy makers should raise interest rates if they fear a housing bubble, rather than imposing more rules on banks, Bank of Nova Scotia Chief Executive Officer Richard Waugh said.

“If you really are concerned about a bubble, raise the interest rates,” Waugh told reporters in Toronto today after a luncheon speech to the Empire Club of Canada. “It’s not an underwriting or a credit problem, it’s the fact that interest rates do cause bubbles.”

Canadian housing market data are showing few signs of a hard landing after warnings from economists and policy makers that a collapse may be coming. Home sales in Toronto and Vancouver, the country’s two largest real estate markets, continued their surge in August from a year earlier.

“I do not think there is a bubble, but if you’re really concerned and you’re a policy maker, you know what the right way to do it is: raise interest rates,” Waugh, 65, said.

The Bank of Canada yesterday kept the benchmark rate on overnight loans among commercial banks at 1 percent for the 24th-consecutive meeting. At the same time, lenders including Toronto-based Scotiabank have been raising fixed-term mortgage rates to reflect higher yields in the bond market.

Existing home sales in Toronto, the largest market in Canada, rose 21 percent from August last year to 7,569 units, the Toronto Real Estate Board said today in a statement, with average prices gaining 5.4 percent. Vancouver existing home sales rose 52 percent, that city’s real estate board said yesterday.

Tighter Rules

Finance Minister Jim Flaherty tightened rules on insured mortgages for the fourth time in four years in July 2012 on concern some regional housing markets were overheating.

Canadian banks are “well regulated,” Waugh said, adding that he accepts recent rule changes, including tighter underwriting standards set by the country’s banking regulator.

“Regulators and politicians shouldn’t direct banks or anybody as to what assets they should and should not lend into,” said Waugh, who is stepping down as CEO of Canada’s third-biggest bank next month. “If you are concerned about bubbles, do what you do and take the right course on interest rates.”

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