TORONTO (Reuters) - Finance Minister Jim Flaherty said on Monday he continues to monitor the country’s housing market, which has some “hot spots”, but said the situation remained stable.

A home is put up for sale in downtown Montreal, July 14, 2009. REUTERS/Shaun Best

“We have seen some moderation in the housing market in Canada,” Flaherty told reporters after a speech in Toronto. “There are a couple of hot spots in the country, including Vancouver, the condo market in Vancouver, but overall I’m satisfied that there is some moderation in the market.”

Unlike the United States, where home prices have fallen below the lows hit just after the financial crisis, Canadian house prices have climbed to multi-year highs, helped by low interest rates and the country’s still healthy banking system.

While the gains have helped power the economic recovery, some officials and economists have fretted about the potential for the boom to become a bubble.

Flaherty told Parliament later on Monday that Canada’s housing sector is in a “very different place” compared to the U.S. market.

“The reality is that their housing crisis continues, that there’s a danger of a prolonged housing crisis in the United States. That’s not in Canada, and that’s because we regulate, we supervise, we monitor; we have fiscal responsibility in terms of the housing sector in Canada, a very different place,” he said.

HOT MARKETS

Flaherty’s comments about hot markets echoed concerns flagged by Bank of Canada Governor Mark Carney last week in Vancouver, the country’s most expensive housing market. Carney said some trouble spots like Vancouver have characteristics of “financial asset markets” and urged policymakers to be vigilant.

But Carney did not use the word “bubble” and he said conditions should moderate as housing demand is eventually dampened by higher borrowing costs and other factors.

Still, data on Monday showed Canadian households continued to dig themselves further into debt in the first quarter as more people took out mortgages at ultra-low rates, according to Statistics Canada.

The ratio of household credit market debt, which includes mortgages, consumer credit and loans, to disposable income rose to 147.3 percent in the first quarter from a revised 146.2 percent in the fourth quarter of 2010.

“While household credit has slowed, and indebtedness has stabilized, households remain highly leveraged. In our view, a debt-to-income ratio of 147 percent is still excessive,” Diana Petramala, an economist at TD Bank, said in a research note. A more “optimal” level for indebtedness would range between 138 percent and 142 percent, she wrote.

“Despite strong home price gains over the last year and a half, household real estate assets are highly leveraged as households continue to borrow strongly through mortgage credit,” Petramala said.

Flaherty also said that interest rates “have nowhere to go but up”, so when they do, homeowners will be facing higher monthly payments and “they have to be realistic about that going forward.”

NO PLANS TO FURTHER TIGHTEN RULES

Last week, housing figures from the Canadian Real Estate Association (CREA) showed home resale prices slipped 0.6 percent in May from April, partly because of the effect of stricter mortgage rules that came into effect in the spring. It was the first full month of data that reflected the new rules.

To try to prevent the housing market problems that led other countries into financial crisis, and to curb rising household debt levels, the government has tightened mortgage rules three times since 2008.

“The Canadian market, from time to time, has needed some calming, which we’ve done,” Flaherty said, noting the government has no plans to take further action on mortgage rules, having just introduced the latest set, which took aim at mortgage amortization and refinancing.

The CREA data showed Vancouver’s hot market again had a big influence in May on the average national price, which rose 8.6 percent from a year earlier to C$376,817. The gain is similar to those of the past several months due to very high prices in some Vancouver neighborhoods and broad gains in Toronto.

Overall, analysts predict the housing market will cool further in coming months because of the new mortgage rules and higher borrowing costs.