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Signs of improvement, but housing remains key risk to Canadian economy, says BoC

OTTAWA - The Bank of Canada is continuing to sound the alarm about the country's housing market and high levels of household debt.

The central bank's says in its latest semi-annual review of the financial system that Canada's housing market is showing signs of a soft landing, but it remains the biggest domestic risk facing Canada.

The probability of a sharp housing correction, particularly in prices, is small, the bank says, but the consequences would be large for highly indebted households, some financial institutions and the economy in general.

Overall, the bank says the risks to the financial system remain largely unchanged since it last reported on the issue in December, although it says the likelihood of a hard landing in China has increased, while the risks in the eurozone have lessened somewhat.

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