Tara Perkins –
Real Estate Reporter
The Globe and
Tuesday, Oct. 23 2012, 12:05 AM EDT
three-quarters of Canadian households would feel a significant strain if they
were to experience a modest increase in their monthly mortgage payments, a new
survey by Bank of Montreal suggests.
BMO will release
an inaugural report on housing confidence Tuesday, as policy makers, economists
and the general public pay more and more attention to house prices and debt
levels, with signs the real estate market could now be turning a corner after
years of strong growth.
While the Bank
of Canada is expected to leave interest rates at their current levels Tuesday
morning, the market will be carefully parsing the words in its accompanying
statement for signs of what’s to come. Central bank Governor Mark Carney is in
a tough spot: low rates are being blamed for sky-high consumer debt levels,
largely in the form of mortgages, but raising rates could dampen economic
growth at a time when trouble spots such as Europe are still a threat.
The BMO report
suggests that Canadians still have strong buying intentions when it comes to
housing, with 46 per cent of homeowners saying they intend to buy a property in
the next five years. But the number who would buy in the next five years drops
to 36 per cent if house prices were to rise by 5 per cent, showing the
sensitivity of the market to prices at a time when many economists expect them
In contrast to
economists’ expectations for most regions of the country, the survey suggests
that homeowners generally expect prices to rise by 2 per cent over the next
year. Residents in the Greater Toronto Area were even more optimistic, even
though that area is expected by forecasters to see one of the larger price
declines. Vancouver residents were more likely to expect falling prices.
one-third of those surveyed have already cut back on big purchases and spending
on entertainment, while one-quarter are reducing the amount they save in order
to make their mortgage payments.
While nearly all
of those surveyed said debt is a serious issue for Canada, only 19 per cent
thought that it was a problem for them. Sixteen per cent said a 10 per cent
increase in mortgage payments would leave them at risk of not being able to
afford their home.
“Rising debt and
elevated house prices have increased the vulnerability of a meaningful number
of households, and their financial situation will worsen if interest rates
increase even moderately,” BMO senior economist Sal Guatieri stated. “With
rates likely to remain low for some time, the recent tightening in mortgage
rules will help to cool credit growth and the housing market.”
The survey was
conducted for BMO by Pollara, and done by way of online interviews with a
random sample of 1,011 homeowners between Sept. 13 and Sept. 21.