of how the risks around a mortgage are shared between borrower and lender. because the mortgage is shared, like equity in a company, the risks are shared. of course, a shared equity mortgage does not make risk go away. the important point is that lenders are better placed than borrowers to carry risk because they can diversify risks across many borrowers. borrowers are willing to pay to reduce risk, either through a higher interest rate or through sharing their capital gains or losses with their lender. in canada ’ s case, with our strong standards for mortgage underwriting, the net result of such a reallocation of risk would likely be a safer financial system. of course, there are many other possible variations on mortgage design, so many that it makes me wonder why so little has happened in our mortgage market in my lifetime. i hope that some of the innovative spirit that credit unions have shown in the past will be applied to the mortgage market in the future. after all, one of the founding principles of credit unions is the concept of risk sharing. conclusion it is time for me to conclude. 5 / 6 bis central bankers'speeches the bank of canada ’ s mandate is to encourage a safe and efficient financial system — one that evolves to foster resilience, promote flexibility and allow people to make choices that are right for them. housing and mortgages are the heart of our system. the bank of canada is continuing to watch closely how housing markets are adjusting to the combination of recent provincial and municipal housing policy changes, the revised guidelines for mortgage lending and past increases in interest rates. some previously frothy markets are still adjusting to a significant shift in price expectations, while other markets appear to be operating in a manner consistent with market fundamentals. as markets stabilize in toronto and vancouver, the canadian housing sector should return to growth overall later this year. the regional nature of our housing market highlights that all of us should be looking at ways to improve the safety and efficiency of our mortgage market. more choice for borrowers and more ways for lenders to diversify risks are desirable. to be clear, the system is not broken — it has served canadians and financial institutions well. but we should not stop looking for improvements. and i invite all of you to join this effort. i would like to thank ron morrow, jason allen, brian peterson, adi mordel and nigel stephens for their help in preparing this speech. 6 / 6 bis central bankers'speeches

this is that it is not higher interest rates and changes to mortgage lending guidelines that have had the greatest effect on housing demand. rather, it is their interaction with froth that matters most. how much a housing market adjusts depends on how much froth there is. supporting this conclusion is the fact that many other markets across the country look quite healthy. resale activity has been solid in places as diverse as halifax, moncton, montreal, ottawa and, more recently, right here in winnipeg. this is what we would expect in an economy that is growing, with a rising population and strong labour market, and when interest rates remain very low by historical standards. meanwhile, housing markets continue to struggle in alberta and, to a lesser extent, saskatchewan. the primary cause appears to be the ongoing process of adjustment to the 2014 – 15 oil price shock, as well as the renewed weakness we saw late last year. before 2014, people and businesses were making long - range plans based on continued high oil prices. a lot has changed since then. most importantly, us oil production has expanded dramatically, causing many to revise downward their long - term expectations for world oil prices. companies have reduced their investment budgets and worked to reduce their costs. ultimately, the adjustments are seen in areas that have real consequences for people, such as layoffs, lower wages and lower house prices. i do not mean to suggest that the new mortgage guidelines have had no effect on housing markets, for they certainly have. the purpose of these changes was to increase the resilience of our financial system in the face of an extremely high debt load. the stress test is designed to ensure that new borrowers can still handle their mortgage payments even if their circumstances change, such as a decline in income or a modest increase in interest rates. evidence suggests that the new guidelines have been working as designed. the quality of new loans continues to improve, and fewer mortgages are going to highly indebted buyers. from the house buyer ’ s perspective, the guidelines look like a cut in purchasing power. but many are adapting by buying less expensive housing or delaying their purchase until they have built up more savings. to the extent that the new guidelines have helped stop the speculative rises in house prices in vancouver and toronto, they presumably have also worked to help keep houses 2 / 6 bis central bankers'speeches from becoming even less affordable. we conclude from all this that the fundamentals of the canadian housing market remain solid, and growth will resume