"We would, in essence, be dousing the entire Canadian economy
with cold water, just as it emerges from recession," Wolf said in an Edmonton speech delivered on behalf of deputy governor Timothy Lane, who could not travel to the Alberta capital for personal reasons.
"As a result, it would take longer for economic growth to return to potential and for inflation to get back to target," he added.
Finance Minister Jim Flaherty has also openly discussed policy measures to cool the housing market, including raising the minimum down payment requirement above five per cent, or reducing the maximum length a residential mortgage can be amortized from the current 35 years.
Monday's speech came hours after Canada Mortgage and Housing Corp. released a report indicating the annual rate of housing starts reached 174,500 units in December, up nearly 10,000 from November.
The organization said the improvement in housing starts was broad-based, with solid increases in both single and multiple starts to end the year.
Klump said the rise in new supply in market as well as increase in resale market will let some of the air out of tires in the balance between supply and demand, adding that as 2010 progresses price increases will shrink to the rate of inflation.
Wolf said that even if the bank judged that housing prices were getting out of hand, raising interest rates is too blunt an instrument since it would have the effect of cooling off the entire economy.
Statistics Canada also released figures Monday that pointed toward growth in the housing sector, showing construction intentions in the residential sector are starting to approach their pre-downturn levels, rising 9.1 per cent in November to $3.8 billion.
Contractors took out $5.9 billion in building permits in November, down 4.6 per cent from October.
But Statistics Canada reports that they were 23.1 per cent higher than November 2008 and 62.8 per cent above February 2009, when their value bottomed out amid the economic downturn.
Klump said the current hot market is unlikely to cause a bubble because the economy is on an upward swing, reducing the probability of a massive decline in housing demand.
"I don't see where the catalyst is going to come from for some kind of massive decline or popping of any quote unquote bubble," he said.
