Canada leads the world in terms of household debt levels, and is a major risk to the country's economy, says the OECD in a new report.
In a chapter of a report that will be published next month that has been published in advance, the Organization for Economic Cooperation and Development says that although virtually all countries saw their debt burdens increase in the years prior to the Credit crisis of 2007, most have seen their indebtedness decrease over time.
But that is not the case of Canada and some Scandinavian countries, where the debt levels of households, as the OECD says, "have continued to rise from high levels".
Canada now leads the world in terms of household debt, when expressed as a percentage of the size of the economy.
Much of the debt that Canadians have been accumulating is tied to real estate, which tends not to grow both the economy and other forms of debt, such as companies that apply for loans to expand.
That's bad news again because the OECD says there's a correlation between higher-than-normal house prices and where the economy is headed. "The research points to a series of links between high indebtedness and the risks of serious recessions," the OECD said.
An increase in housing prices above normal was observed just before each of the four major global recessions dating back to the 1970s and in all OECD nations, the average prices of the Housing are already higher in relation to GDP than before the slowdown in the 70s, 80s, 90s and early 2000s.
According to the latest figures from the Canadian Real Estate Association, the average price of a Canadian house sold last month was just under $ 506,000, five percent more than the same month last year.
Rental market warning sign
High prices in some cities are often justified by a corresponding increase in rents, but the OECD says that even with that metric, Canadians are borrowing more than they should to finance real estate, even if it is a supposed property of income.
Compared to long-term averages, Canadian home prices are almost 50 percent higher than they should be, compared to what landlords can charge for rent.
"Although in part this reflects strong population growth," the OECD acknowledges, "these developments may involve a significant risk to financial stability, given the direct exposure of the financial system to the housing market."
Housing debt is not the only form of debt that Canadians are taking more, but the OECD says it is clear that the main driver of debt is the exaggerated price of housing.
"The OECD countries that have experienced the largest increases in household debt since the crisis also have the sharpest increase in housing prices," the group said.