IMF warns about Canadian housing market, debt levels

The International Monetary Fund is warning about the housing market's threat to the broader economy, noting that the government might again need to step in if household debt levels continue to rise.

"In Canada, the key priority is to ensure that risks from the housing sector and increases in household debt remain well contained and do not create financial-sector vulnerabilities," the international body says in its twice-a-year report on the global economy that was released Tuesday.

"Thus far, mortgage credit growth has slightly decelerated in response to the measures taken by the authorities, including tighter mortgage insurance standards. If household leverage continues to rise, additional measures may need to be considered."

Ottawa has moved several times in the last few years to curb housing-related debt, stepping in to limit how long Canadians can take to pay back their mortgage debt. In June, Finance Minister Jim Flaherty set the limit for CMHC-insured mortgages at 25 years.

'Fiscal cliff' a concern

The agency alsowarned aboutCanada's proximity and reliance on the U.S. economy, which remains sluggish.

"In Canada, growth has been constrained by the sluggish expansion in the United States a result of the two economies deep economic and financial linkages and the ongoing fiscal consolidation," the IMF said.

If the major dangers facing the U.S. economy such as the "fiscal cliff" of government spending cutbacks coming at a time of economic slowdown in the private sector cometo pass, that will undoubtedly have a spillover effect on to Canada.

Of the U.S. economy, the IMF said "the main external risk pertains to a further escalation of the euro area crisis," and that, too, could have a knock-on effect on Canada.

As a result, the agency forecasts Canada's economy to expand by 1.9 per cent this year andtwo per cent next. In each case, that's 0.2 percentage points slower than the last time the IMF tried to forecast the country's outlook.