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The Bank of Montreal's CEO is downplaying the consequences that would come from a possible correction in house prices, saying the real estate market "essentially heals itself.''

"I've been involved in banking and house lending for almost four decades, and there have been periods where house prices have risen very rapidly and the market has corrected,'' Bill Downe said following a speech to the Canadian Club of Toronto Thursday.

The speech may be one of his last public appearances prior to his retirement in October, when BMO's chief operating officer Darryl White will take the reins.

Downe said that when house prices decline, people tend to stay in their homes longer than they had planned and pay down their debt, thus allowing the market to repair.

"It's what happened after the crisis in the United States,'' he said. ``We're in a different situation, but the consequences of a market correction will be the same.''

In recent weeks, the OECD and the IMF have both called for more government measures to rein in rapidly rising house prices in cities such as Toronto and Vancouver.

However, Downe suggested it would be prudent for policy-makers to wait and see what the effects of recent changes introduced by the Ontario government _ including a 15 per cent tax on foreign buyers _ will be before taking further actions.

"It is possible that there are things that need to be done with supply in order to alleviate the demand for housing in crowded places like Toronto where the inflow of people is very high,'' Downe said.

"But the steps that have been taken so far are still working their way through the system and I have some confidence that they'll pay off.''

While home sales in Toronto have plunged since the rules were introduced, some economists have said the reprieve may be short-lived, as buyers move to the sidelines to assess the impact of the changes.

However, much like what transpired in Vancouver, that pent-up demand will eventually re-enter the market and push prices higher, economists at Canada's largest banks have predicted.

While there are a number of things that can be done to control demand, Downe said if there is an insufficient supply of homes available for sale, policies may be needed to address that imbalance.

"That means the construction of affordable housing,'' he said.

Source: The Canadian Press