The International Monetary Fund has issued a new warning over Canada’s housing market and rising household debt.
In a statement following a recent visit to Canada the IMF says that although the economy is generally good, weak business investment and non-energy exports, together with vulnerabilities in the housing market “raise uncertainty about the durability of the Canadian recovery.”
The statement notes that the $1.5 trillion Canadian mortgage market has been “important in sustaining private consumption” but warns of the highly indebted households and housing affordability issues particularly in Toronto and Vancouver.
The IMF also highlights the downgrading of Canada’s six largest banks as a reflection of the concerns and says that a sharp correction in the housing market would hit balance sheets.
“Financial stability risks could emerge if the housing market correction is accompanied by a severe recession,” the IMF warns.
The solutions? Among the recommendations the IMF makes in the statement are a further tightening of macroprudential policy to protect the resilience of households and banking sector.
However, the organization does not agree with the introduction of foreign-buyers’ tax, preferring instead that policy should tackle property speculators rather than “discriminate against non-residents.”
