Nearly one in six Canadians couldn't handle a $500 mortgage increase
According to the bank, 16% of respondents said they would not be able to afford such an increase, while more than a quarter, or roughly 27%, would need to review their budget.
The ultimate goal of most Canadians should be the elimination of debt, but the first step needs to be getting rid of bad debt, said Chris Buttigieg, senior manager of wealth planning strategy at BMO, which has the potential to destabilize a households financial situation.
Another 26% said they would be concerned, but could probably handle it.
Such an increase would be generated in the case of a three percentage point hike in interest rates - from 2.75% to 5.75% - on a $300,000 mortgage with a 25-year amoritization period.
Given that interest rates are likely to increase in the foreseeable future, the bank said there was no better time to put together a detailed debt management plan.
A report by Statistics Canada last month found the ratio of household credit market debt to disposable income climbed in the second quarter of 2015 to 164.6%, up from 163% in the first three months of the year.
That means Canadians owed nearly $1.65 in consumer credit and mortgage and non-mortgage loans for every dollar of disposable income.
The report by BMOs Wealth Institute found that almost half of Canadians, 47%, believed that the high level of debt in Canada has been influenced by soaring real estate values, while 40% believed it has been influenced by low rates.
Files from The Canadian Press
LISTINGS FALL AGAIN TO END 2019, PUSHING PRICES HIGHER
Canadian Real Estate Association data show that national-level home sales fell 0.9% (sa m/m) in December 2019 after rising in the previous nine months. Limited availability looks to be increasingly weighing on sales activity. The month saw another broad-based decline in new listings18 of the 31 centres for which we have data witnessed fallsthat lifted the national sales-to-new listings ratio to 66.9%. It was the highest ratio since 2004 and a third straight month of supply- demand conditions tilted in favour of sellers (after data revisions). Fourteen cities reported sellers market conditions; the rest were balanced. The aggregate MLS Home Price Index (HPI) rose 3.4% (nsa y/y), its best gain since March 2018.
Montreal remained Canadas tightest local market, with rising sales and falling listings leading to yet another record-high sales-to-new listings ratio and the citys steepest y/y MLS HPI gains since 2005. Ottawas ratio also reached a new high as new listings plunged by more than 20% (sa m/m), driving a record 12.5% (nsa y/y) MLS HPI increase. Toronto also crept into sellers market territory for the first time since March 2017as in Montreal, home purchases rose and new listings felland its 7.3% (nsa y/y) HPI rise was the sharpest since 2017.
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Source: Scotiabank Economics
Story in 2018 and early 2019 was weak sales; story in 2020 will be lack of supply
The Canadian Real Estate Association (CREA) has updated its forecast for home sales activity via the Multiple Listing Service (MLS) Systems of Canadian real estate boards and associations this year and for 2020.
Evidence suggests housing activity will continue to improve into 2020, with prices either continuing to rise or accelerating in many parts of Canada. Indeed, many housing market indicators continue to support this outlook.
Economic fundamentals underpinning housing activity remain strong outside of the Prairies together with Newfoundland and Labrador. The national resale housing market outlook continues to be supported by population and employment growth while consumer confidence is benefiting from low unemployment rates outside oil-producing provinces. Additionally, the Bank of Canada is widely expected to not raise interest rates in 2020.
Mortgage interest rates have declined, including the Bank of Canadas benchmark five-year rate used by Canadas largest banks to qualify applicants under the B-20 mortgage stress-test. Though the decline in the benchmark rate has been modest, it is helping to improve homebuyer access to home purchase financing.