B.C., Alta., Sask. and Ont. most vulnerable to mortgage rate increases

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.

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%—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 Bank of Canada’s 1% key lending rate will gradually rise to 3% by the end of 2012.

“On 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,” 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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