As part of a stress test conducted by the Canada Mortgage and Housing Corporation, it concluded that its business would suffer a loss but could withstand a hike. However, for homeowners the pain could be severe.
Interest rates are not the only risk factor for a sharp correction of home prices. A severe and prolonged depression could see a 25 per cent slump for prices.
CMHC said that none of the scenarios it has tested should be taken as predictions.
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Home prices could fall by as much as 30 per cent if there was a sudden hike in interest rates.