The Bank of Canada warned that 30% of mortgage buyers are at risk from rising interest rates..The warning came as Bank data showed the typical Canadian grew their net worth an average $230,000 last year with the historic run-up in real estate prices..“More Canadians have stretched to buy a house,” said Bank of Canada Governor Tiff Macklem yesterday. “These households are more exposed to higher interest rates and the potential for housing prices to decline.”.“High household debt and elevated house prices are vulnerabilities,” said Macklem. “If the economy slowed sharply and unemployment rose considerably the combination of more highly indebted Canadians and high house prices could amplify the downturn.”.According to Blacklock's Reporter, new homebuyers who purchased in a rising market and those who did not lock in mortgage rates are at greatest risk, he said. “Two thirds of Canadians are homeowners,” Macklem told reporters..“Just under half own their home outright and the rest have a mortgage. Of those 70% have a fixed rate mortgage that is not immediately affected by higher interest rates.”.“The other 30%, or 10% of (all) Canadian households have a variable rate mortgage,” said Macklem. “Throughout the pandemic a growing number of Canadians took out mortgages that were very large.”.The Bank yesterday in an its latest Financial System Review warned that vulnerable homeowners in distress would affect the entire economy. “The effects for the real economy could be significant if a trigger event occurs even as systemically important financial institutions remain resilient,” wrote staff..Canadians on average improved their net worth by $230,000 on paper, said System Review. “The increase in overall net worth seen in 2020 and 2021 hides important changes in its distribution and composition across households,” it added..“Most homeowners have more home equity to borrow against if they experience an income shock but the gains are lowest for those who purchased a house most recently,” wrote staff, adding: “A rising number of households have financially stretched to purchase a house amid elevated house prices. Increasingly over the past year households have taken on mortgages that are large relative to their income.”.Current inflation is officially pegged at 6.8% in Statistics Canada’s benchmark Consumer Price Index. The true figure is closer to 7% or more when accounting for high car prices, according to StatsCan..“Inflation looks like it’s going to go higher before it eases,” Governor Macklem said yesterday.
