Households in British Columbia, Alberta, Saskatchewan and Ontario are most vulnerable to interest rate increases or another economic slump, according to a new TD Economics’ Household Financial Vulnerability Index.
A substantial correction in housing prices, a major disruption in incomes or an unexpectedly huge jump in mortgage rates could cause considerable financial stress on the homes of the four provinces.
Manitoba is the least vulnerable while Atlantic Canada and Ontario are in between. B.C. is particularly susceptible with a provincial debt-to-income ratio of 160 per cent—the same level reached in the United States before the financial crisis occurred and housing market collapsed. The ratio is so dramatic because of the west coast’s high housing costs.
“Higher interest rates over the next few years threaten to leave as many as one in 10 households in B.C. in a position of financial stress,” TD’s chief economist Craig Alexander told the Vancouver Sun. The report predicts the current one per cent interest to gradually rise to three per cent by the end of 2012.
“On the plus side, rapidly appreciating home prices in the province has left the debt-to-asset ratio, a metric of household leverage, below the Canadian average,” Alexander added.
In the Vancouver market alone, TD predicts home sales to decline nine per cent and prices to fall by 1.4 per cent in 2011. Meanwhile, B.C. is the only province that has a negative average savings rate.