RBC's dire warning to Alberta deconstructed

RBC's dire warning to Alberta deconstructed

RBC

In light of RBC reporting claiming Alberta will be hit hardest by rising interest rates, not everybody believes the sky will fall.

“Our research shows that Albertans would see the biggest increase in debt-service payments in Canada—more than $1,200 a year, on average—if interest rates rose by one percentage point,” reads the report. “Households in B.C. and Ontario are also more indebted than the national average, but Albertans carry the heaviest debt loads.”

But Croft Axsen, owner of DLC Jencor Mortgage Corporation disputes the impact, believing that, on a granular level, the increase is insignificant.

“They’re suggesting that the total debt in Alberta is higher but it amounts to $16 a month, and I’m not sure $16 a month is worthy of the headline,” said Axsen. “The other thing about the report is it deals with total debt and it doesn’t bring up income at all.”

He does concede, however, that unemployment in Alberta is higher than in other provinces, but furthermore adds that, compared to Ontario and British Columbia, RBC’s estimates aren’t off by much.

“When you look at the actual difference in the yearly debt payments, it’s $200 a year between Alberta, B.C. and Ontario,” said Axsen. “I recognize house prices have been rising significantly more in Toronto and Vancouver, so there’s a bigger asset cushion, but they’re not really talking about that. They’re talking about the debt load and how horrific an $8 difference between B.C. and Alberta, and a $16 month difference between Alberta and Ontario, is, and somehow that’s a devastating number.”

He added that mortgage arrears ratios aren’t higher in Alberta than most other provinces.

Alberta’s economy is in recovery and rate hikes could impede progress. Axsen believes the federal government has an opportunity to ameliorate the province’s fortunes by building oil pipelines.

“The overall economic activity is difficult but the bigger problem is the federal government’s regulatory policy is reducing mortgage liquidity so people who want to turn 16% charge card debt into 3% mortgage debt can’t, and I’m not sure what the logic behind that is,” he said. “I’m not sure how preventing people from buying houses helps the economy in general. I understand the fear of bubbles in our two major cities, but house prices in Calgary haven’t really changed much in the last six or seven years.”

 

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