Albertans most vulnerable to rate hikes: RBC

existing liabilities and harder to refinance. Tighter conditions may crimp Canada’s economy, which has relied on consumer spending and gains in real estate for growth over the past several years.

The Bank of Canada is expected to raise its benchmark rate to 1.75 per cent by the end of this year, from 1.25 per cent now, according to the median of 16 forecasts in a Bloomberg survey of economists. The next decision is April 18 in Ottawa.

A booming provincial economy and strong income gains before the oil price collapse that began in 2014 emboldened Albertans to amass significant debt, Hogue said. Average household liabilities in the province rose to $192,000 in 2016 from $164,000 in 2010, he said. That compares with $174,000 in British Columbia and $154,000 in Ontario. Other provinces are “well below” the national average debt load of $141,000, he said.

In addition, Albertans may feel the impact of higher rates sooner, since 18 per cent of mortgage borrowers have terms of two years or less, by far the highest share in the country, Hogue said. The average household in Alberta had $124,000 in mortgage debt, with other debt such as term loans, credit lines and leases amounting to $68,000, he said.

Debt-service bills will get larger as interest rates increase. That’s “bound to cause many households to spend more cautiously on other goods and services,” Hogue wrote.

Potential increases in debt-service costs “aren’t pocket change,” he added. The $1,200 no longer available for spending would exceed the $1,000 Alberta households spend on entertainment or the $800 they spend on furniture. crude is partly caused by pipeline capacity constraints as oil production rises in Canada. A key conduit to the U.S. market, TransCanada Corp.’s Keystone pipeline, remains at lower capacity following a leak in November.

He says there’s also less room for Canadian crude in U.S. refineries, which are running at a 13-year high of above 90 per cent of capacity.

Deloitte predicts Canadian price differentials will start to return to historic norms as the new Sturgeon Refinery northeast of Edmonton ramps up production this year, soaking up some of Alberta’s oilsands crude surplus, and as more refinery room becomes available in the U.S.

It adds that the Alberta government’s recent initiatives to encourage building partial upgrading facilities for oilsands crude, if successful, will also help free up more export pipeline room.

About 850,000 barrels per day of Canada’s oil production is conventional light oil — the rest of the 4.5 million bpd total is oilsands bitumen and conventional heavy oil. A research report by an RBC economist released Tuesday says Alberta’s households will be hardest hit by an increase in interest rates, with a rise of one percentage point adding $1,200 in annual debt-service costs in that province.