The Canadian government needs to pour more cold water on overheated housing markets in Toronto and Vancouver, an international economic group says.

The Paris-based Organization for Economic Co-operation and Development (OECD) stopped short of outlining specific measures, but referred to so-called “macro-prudential” efforts Ottawa has taken in the past.

In December, Ottawa raised the down payment required to qualify for a CMHC-insured mortgage on homes valued between $500,000 and $1 million. Banks have also tightened their lending criteria to ensure borrowers can withstand a future rise in interest rates.

But house prices have continued to soar in select markets amid a shortage of listings, record low interest rates and growing competition from foreign buyers. The average sale price for Toronto-area homes in April was $739,082, a 16.2 per cent hike over the same month last year, according to the Toronto Real Estate Board.

“Very low borrowing rates have encouraged household credit growth and underpinned rapidly rising housing prices, particularly in Vancouver and Toronto, which together are a third of the Canadian housing market,” the OECD said in a report released Wednesday. “In relation to household incomes, both house prices and household debt are high. Macro-prudential measures have been strengthened recently but should be tightened further and targeted regionally.”

The OECD issued the call as part of its biannual Global Economic Forecast.

The agency’s outlook for the global economy — and Canada’s economy — have worsened since its last report in November. With business investment stalled and consumers becoming more cautious, the global economy is expected to grow just 3 per cent this year. That’s 0.3 percentage points lower than the OECD’s previous forecast, and puts it on par with last year’s performance, the slowest rate since the recession of 2009.

In 2017, the OECD expects the global economy will pick up, growing by 3.3 per cent, but that’s also down 0.3 percentage points from its previous forecast.

Canada’s gross domestic product is expected to grow 1.7 per cent this year and 2.2 per cent in 2017, the OECD said. That’s down from its November estimate of 2 per cent growth in 2016 and 2.3 per cent in 2017, the agency said, citing the impact of low oil prices on the energy sector.

Business investment in oil and gas this year is likely to be 60 per cent below its 2014 peak, but should be a smaller drag in future, the OECD said.

Canada’s economy is improving as nonenergy exports pick up, aided by a lower dollar and stronger demand, the OECD said.

“The main domestic downside risk is a disorderly housing market correction, particularly in the high-price Toronto and Vancouver markets. This would damp residential investment and private consumption, and could threaten financial stability,” the report cautioned.

The federal budget, which outlined plans to increase spending on roads, social housing and other infrastructure projects, will help boost the economy by 0.5 percentage points, the agency also said.

The Canada Child Benefit, which replaces an existing program aimed at helping families, will also put more spending power in the wallets of lower-income Canadians, the report noted.

With files from Star wire services

Economic ideas

How Ottawa could improve productivity and reduce income inequality, according to a new OECD report:

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Housing: Ottawa should further tighten mortgage rules to reduce financial-stability risks from high household debt and house prices in cities like Toronto and Vancouver.

Foreign investment: Ottawa should reduce barriers to foreign direct investment in telecommunications, broadcasting and airlines. Such measures would benefit lower- and middle-income households by reducing prices.

Electricity: Governments need to boost interprovincial competition by liberalizing electricity generation and distribution and reducing barriers to internal trade.

Small business: Government should replace the preferable tax rate for small business with targeted measures aimed at specific businesses that are having difficulty obtaining financing.

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