“For Sale” signs are popping up around Quebec as the prime listing season for residential real estate gets under way.
For many people, that means taking on a mortgage at a time when households are carrying record levels of debt.
Household indebtedness in Canada has reached an all-time high of 163.3 per cent of after-tax income, with about two-thirds of that borrowing in the form of mortgage loans.
Rock-bottom interest rates are pushing many buyers into the market and helping to make home purchases more affordable than they’ve been in a decade.
With more potential buyers out there, lending institutions are competing fiercely for business, advertising a wide variety of deals such as introductory rate specials, cash-back offers and “employee pricing.” The presence of online lenders like First National Financial has added a new element of competition.
But there’s a downside to the story. Analysts warn that mortgage debt could be the next flashpoint for a recession in Canada, leaving consumers dangerously exposed to a downturn in the economy or to a rise in interest rates. Bank of Canada governor Steven Poloz calls it the single biggest risk to the economy.
Low rates have helped push up housing prices, potentially setting up consumers for a fall.
The Bank of Canada estimates that residential real estate is overvalued by anywhere between 10 and 30 per cent, depending on the local market. The International Monetary Fund chimed in with a recent call for the government to rein in the financial sector and spread mortgage risk more widely by reducing federal insurance coverage, thereby forcing private lenders to shoulder more of the risk.
It’s not all bad news. Canadians owe more but they’re also worth more. To the extent that house prices remain firm and there’s no crash landing, home prices have helped improve household balance sheets.
see more: http://montrealgazette.com/news/local-news/are-low-mortgage-rates-setting-us-up-for-a-fall?__lsa=1e28-257f
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