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%â€”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 coastâ€™s high housing costs.
â€œHigher 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,â€ TDâ€™s chief economist Craig Alexander told the Vancouver Sun. The report predicts the Bank of Canadaâ€™s 1% key lending rate will gradually rise to 3% by the end of 2012.
â€œOn the plus side, rapidly appreciating home prices in the province [have] left the debt-to-asset ratio, a metric of household leverage, below the Canadian average,â€ Alexander added.
In the Vancouver market alone, TD predicts home sales to decline 9% and prices to fall by 1.4% in 2011. Meanwhile, B.C. is the only province that has a negative average savings rate.
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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 homes in these four provinces.