There are many good things to say about the Canadian macroeconomic situation: low unemployment, inflation on target, and solid growth forecasts.
But the OECD still has two key issues with Canada – and one of them is the housing market.
In its 2018 Economic Survey of Canada, the organization says that the uncertainty surrounding trade restrictions, especially NAFTA, is weighing on growth forecasts and depend on political decisions, notably in the US.
The second issue of concern is the combination of elevated household debt and rising housing prices.
These factors, the OECD warns, could lead to a disorderly market correction “potentially reducing residential investment and household wealth and dampening consumption.”
The rising housing prices have not only increased macroeconomic risk but also created affordability challenges, the OECD says.
Noting the policy changes implemented by federal and provincial governments in recent years, the report recommends that the government should monitor the effects of recent targeted regulations, “paying close attention to high-debt, low-income borrowers most vulnerable to high debt-service loads as interest rates rise.”
The OECD report also recommends increasing the supply of affordable housing and better maintaining the existing social housing stock.
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