Increased Household Debt and Animated Real Estate create vulnerabilities

Canada’s financial system is becoming more and more opened to economic shocks as the levels of household debt keep increasing and the main housing markets remain red hot, the bank of Canada said Thursday.

Even though the central bank cautioned that the country’s most important weak spots have enlarged, Governor Stephen Poloz said the whole financial system remains strong and larger economic conditions have shown signs of advancement.

The bank’s evaluation was rolled into its semi-annual analysis, which looks over and recognizes the main weaknesses and risks around the stability of the financial system.

The two main treats on the bank’s sight are also intertwined. It said the increase in mortgage lending in Vancouver and Toronto has greatly encouraged a growth in Canada’s overall household indebtedness since the bank’s last evaluation six months ago.

“Highly indebted households have less flexibility to deal with sudden changes in their income,” said the bank.

“As the number of these households grows, it is more likely that adverse economic shocks to households would significantly affect the economy and the financial system.”

The document was delivered since concerns about the Canadian real estate market both home and abroad keep increasing.

This week, the Paris-based OECD became the most recent international organization to encourage Canada to do more to address risks linked to its high-priced housing markets.

The report released by the central bank also highlighted Moody’s new credit