Vancouver Sun - "Debt-laden B.C. homeowners warned of interest-rates squeeze"

The BOC, the 5 major banks, realtors’ associations, mortgage brokers, previously bullish commentators, ALL warning of housing price downside. What’s next? A cautionary article in the Vancouver Sun! -vreaa

17 Dec 2009, Derrick Penner, Vancouver Sun. Excerpts -

Homeowners are being warned any rise in interest rates later next year risks putting a financial squeeze on the large number of debt-laden Canadians who took out variable mortgages at rock-bottom rates. This is a particular concern in Metro Vancouver, Canada’s most expensive housing market, where buyers have been drawn into the market in numbers large enough to drive prices back up to near their previous peaks following the recent market correction.

“Canadians are potentially leaving themselves wide open for significant financial obligations once interest rates begin to rise,” the Mortgage Brokers Association of B.C. said in a statement Wednesday [16 Dec 2009]. The association estimated that some 40 per cent of homebuyers are taking on variable mortgages. “There certainly has been more of a trend for people deciding to choose variable rates,” association president Joe Santos said in an interview. Dos Santos said his biggest concern from rising rates mortgage rates is with buyers who purchased homes in 2006 and 2007, when credit was a little more easily obtained and borrowers could get 100-per-cent mortgages, than he is for recent buyers who have taken out variable mortgages. “I think [steep rate increases] would certainly create some issues for some consumers who were stretched when they initially qualified [for mortgages],” he said. Recent buyers, Santos said, would have qualified under rules that call for an ability to pay a higher rate than the current variable rate and should have room in their budgets for bigger mortgage payments.

…..the bold prediction of economist and author Jeff Rubin that the jump in rates could be as steep as three to four percentage points over the next two years as the Bank of Canada raises rates to keep inflation caused by increasing energy costs in check. That increase could add up to $1,000 dollars a month to the payment on a typical-for-Metro-Vancouver $400,000 mortgage.

Cameron Muir, chief economist for the B.C. Real Estate Association, is forecasting mortgage rates might increase 1.30 percentage points on short-term mortgages and perhaps 0.75 of a percentage point on five-year rates by the start of 2011. That modest increase in interest rates will still dampen sales as they combine with Metro Vancouver’s high prices, he added.