Bracing for jump in Canadian interest rates
— A3
Even as home prices continue rocketing up, British Columbians are worrying about what will happen when the real estate market eventually comes back down to earth, according to alarming poll results released this week.
Financial services firm MNP commissioned a survey in late June that found 30 per cent of B.C. residents believe they would face difficulties if the value of their homes decrease, while 32 per cent feel they’re in over their heads with their current mortgage payments.
And more concerning in light of a Bank of Canada rate hike expected today, 73 per cent of B.C residents reported they would have trouble absorbing a $130-per-month increase in mortgage payments – equivalent to a roughly one percentage point increase in interest rates on an average loan.
The mess in which some people find themselves is due mainly to getting too comfortable during the decade-long era of low interest rates, according to Darrin Surminsky, a Kelowna-based vice-president of MNP.
“It’s really unprecedented, and so now there’s a whole generation of younger people that have never experienced high interest rates and they just don’t realize rates can go up,” said Surminsky.“It has been such a long run on increasing home prices and low interest rates, people don’t understand it can go the other way where home prices go down and interest rates go up.” Banks are also partly to blame, he added. “If you go to McDonald’s and ask, ‘How many Big Macs should I eat?’ they’re going to tell you 100, because that’s how they make their money.
“And that’s what we do when we go to the bank and say, ‘How much of a mortgage can I afford?’” Surminsky said.
Others, he continued, have run up lines of credit tied to their home equity, leaving them house poor.
To stem the damage, he recommends those with variable-rate mortgages move quickly to lock in a fixed rate and pay down variablerate loans like lines of credit.
Even more drastic measures are available through licensed insolvency trustees like Surminsky, who negotiate deals with creditors to restructure debts and get clients back on their feet.
For the time being, however, the housing market is showing no signs of cooling off, according to fresh data from the South Okanagan Real Estate Board.
The average selling price of a detached home in Penticton was $394,000 through the first half of 2017, up from $351,000 during the same year-ago period.
SOREB recorded 638 sales and 314 current listings as of June 30, about equal to the 597 sales and 319 new listings in the first half of 2016.
Across the entire South Okanagan, the average selling price of a detached home was $390,000 through the first half of 2017, up from $362,000 during the same year-ago period.
There were 1,287 completed sales as of June 30, virtually unchanged from 1,283 a year earlier. This year, there were just 972 new listings, way down from 2,065 in the year-ago period.
The MNP survey, conducted by Ipsos, sampled 2,002 Canadian adults between June 19 and 21.
It is considered accurate to within 2.5 percentage points, 19 times out of 20.