Another voice has chimed-in on the state of Canada’s residential housing market. DBRS triggered a lot of chatter with a report that makes the assertion that most Canadian households could survive a 40% decline in property value, based on net worth. It seemed a shocking figure given the various concerns that have been raised if there were just a 20% – 25% drop in home values.
Still the debt-rating service doesn’t stray too far from previous warnings from the finance minister and the Bank of Canada. DBRS says expanding household debt is a concern because it reduces the ability to absorb by other financial shocks. It says a combination of interest rate hikes, property value declines and a big increase in unemployment would be a major concern because mortgage defaults are closely tied to employment.
An article in today’s Globe and Mail also speaks to an example where rates increase 1.25%. The overall impact for most Canadian families that aren’t already overwhelmed by debt is shockingly good. There’s nothing for those in fixed rates to worry about now, but when those mortgages renew a few years down the road, the changes aren’t so large that the average family couldn’t adjust. Certainly budgets will need to change to account for the increased mortgage payments, but it shouldn’t be large enough that it would force most families to sell.
Contrary to the federal government’s wishes, interest rates seem to be heading in the opposite direction they would intend. Diminishing bond yields have all of the big banks dropping their rates for 5-year money. It wouldn’t be surprising to see another rate war occur as bond yields continue to drop.
Lee Welbanks is a Mortgage Broker with Welbanks Financial Group, Lee will be posting these informative “Market Minutes” each Wednesday for you to enjoy. Please remember to subscribe to the Spring Realty Insider list to receive new blog post notifications, featured properties and insider access to Toronto’s hottest new developments right to your inbox.