Two new reports warn that Canadians are taking on such high levels of debt to finance their real estate dreams that a sudden market correction would leave many families in big trouble.

A study released Monday by the Canadian Centre for Policy Alternatives finds that a 20 per cent decline in real estate prices would leave tens of thousands of young families owing more than the worth of their house and other assets.

Homeowners under the age of 40 would be hardest hit “if -- or more likely when -- real estate prices fall,” CCPA Senior Economist David Macdonald said in a statement.

According to the study, a 20 per cent decline in housing prices would see homeowners in their 30s lose close to 40 per cent of their net worth, or an average loss of $60,000. One in 10 home-owning families under 40 would slip into negative net worth after such a decline.

If housing values were to fall even further, by 30 per cent, 294,000 homeowners under the age of 40 would end up with more debt than assets, or one in seven.

In cities with higher prices, such as Toronto, Vancouver and Calgary, young homeowners would see even worse declines in net worth.

Middle-aged families in their 40s, 50s, and 60s would be less affected by drops in housing prices, because they generally have lower debt as well as assets that are diversified more broadly. Still, these families would see their net worth fall, on average, by $70,000 to $80,000.

Meanwhile, the OECD says the federal government should take steps to tighten up lending rules, warning that some housing markets, particularly in Canada's two biggest cities, are at risk of a sharp housing market correction.

The Organization for Economic Co-operation and Development notes in their latest Economic Outlook there have been strong price increases in Toronto and Vancouver, and that both “are already expensive relative to fundamentals.”

It said it was particularly concerned about newly completed but unoccupied housing units in Toronto, which are “increasing the risk of a sharp market correction.”

The group urged the federal government to tighten “mortgage lending in these markets, such as maximum loan-to-value or debt-servicing ratios… to ensure financial stability.”