Homeowners in Toronto and Vancouver, Canada’s two largest cities, are more vulnerable to interest rate increases warns Canada Mortgage Housing Corporation (CMHC) in a new report.
The national housing agency says the debt-to-income ratio for people living in Vancouver now stands at 242%. That means that for every $1 of disposable income, $2.42 is owed in debt. It is similarly high in Toronto, where the debt-to-income ratio is now at 208%. This is the highest debt-to-income ratio recorded for both cities since 2015. Nationally, the debt-to-income ratio is at 171%, according to CMHC.
A major contributor to increasing levels of indebtedness is mortgage debt, which accounts for two-thirds of all outstanding household debt in Canada. CMHC said homeowners with elevated debt levels could see their budgets stretched if interest rates continue to rise in Canada.
The report noted that higher interest rates mean that households could see an increase in the amount required for debt repayment, and that could exceed their original budgets. CMHC said this could lead to a ripple effect if households begin defaulting on their loans and banks begin scaling back on the loans they give out.
The report was based on an analysis with data from credit monitoring firm Equifax, Statistics Canada and the Conference Board of Canada. It noted that household debt levels vary widely, and have dropped in some of Canada's largest cities. The debt-to-income ratio decreased in the Ottawa-Gatineau region, Halifax and Sherbrooke, Quebec. It was the lowest in Saint John, New Brunswick, where it declined to 106%.
