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“This situation raises the risk that a shock to the economy could trigger a correction in house prices,” governor Stephen Poloz told reporters in Ottawa, following the release of the bank’s semi-annual Financial System Review, a closely watched research document on potential shocks and their effects on economic stability.

“The probability of this risk materializing is low, but if it did occur, the effect on the economy would be severe.”

Douglas Porter, chief economist at BMO Capital Markets, said the bank’s 10%-to-30% estimate is “a big range, [and] a similar figure to what they would find in Australia and New Zealand.”

“However, [policymakers] note that the market has been at least 10% overvalued since 2007, and there has been only a ‘modest upward creep’ since 2009.”

That said, the Bank of Canada still believes the housing market is headed for a soft landing — dependent on the global economy gaining strength and as interest rates “normalize.”

The probability of this happening is low . . . But if it did, the effect on the economy would be severe

That statement “is pretty far from ringing alarm bells,” Mr. Porter said.

The bank has held its trendsetting lending rate at a near-record-low 1% since September 2010, giving consumers ample time to pile up debt since the 2008-09 recession. The resumption of rate increases is not expected until around mid-2015.

As well, policymakers feel the overall chance of an “adverse shock” to the country’s financial system has eased since they issued their previous review document in June.