Canada's Housing Bubble

Mar 30, 2010 24hrs.ca

With interest rates rising, mortgage payments will erode the monthly income. Buyer better beware

Matt Kieltyka - Some firsttime homebuyers could be priced out of Vancouver’s housing market in the face of rising mortgage rates.

BC Real Estate Association chief economist Cameron Muir says the city is in for an affordability crunch after Toronto-Dominion Bank and Royal Bank of Canada bumped their benchmark five-year fixed mortgage rates to 5.85 per cent Tuesday.

Other banks are expected to follow suit.

“Affordability will be affected,” said Muir, who says the market has been cooling off. “First-time buyers with low equity are more sensitive to sways in interest rates. The higher rates erode the purchasing power of household. Some buyers will be forced to get homes in a location not as good as they could have had a few months ago, and some people on the margin might be squeezed out of the market completely.”

Credit Counselling Society president Scott Hannah said the end of historically low rates is causing some homeowners a lot of stress.

“It’s a huge concern because many people are taking on sizable mortgages,” he said.
“When you’re dealing with a $400,000 mortgage, even an incremental increase can have a significant impact on people’s lives.”

Richmond mortgage broker Gord Pipkey thinks owners need to speak to a professional before launching themselves into full-blown panic though.

“(People) see the fixed rate go up and paranoia kicks in.”