‘In over their head’ Canadians can’t cope with BOC’s rising interest rates

Canada has recently realized that the certain provinces’ economies are too dependent on the housing bubble. The Great White North has also just discovered that the Bank of Canada (BOC)’s policies, such as artificially low interest rates, produce these kinds of bubbles. At least it’s better late than never.

The Fraser Institute published a report earlier this month arguing that the central bank essentially created a housing bubble with its meddling of interest rates. Now with a pending rate hike this week, the conservative think tank believes a collapse in housing prices, particularly in Ontario and British Columbia, is imminent.

“Our society loves bubbles, because most people make a lot of money on it,” the report’s author told the Financial Post. “If the Bank of Canada is going to raise interest rates, this should reign in the Toronto and Vancouver markets, which are bubblicious.”

As some economists rejoice by this likely development, many Canadians, especially homeowners, fear potential rate hikes.

According to a new survey by MNP LTD, a substantial number of Canadians are worried about the impact that the BOC’s rate hikes will have on the housing bubble and their own personal financial situation.

The poll revealed that nearly half of Canadians and homeowners (45 percent and 48 percent, respectively) are concerned about rising rates and the impact they will have on their finances. More than half (51 percent) of Canadians are pertified of how a decrease in housing prices will affect homeowners.

It is no secret that Canadians are facing unprecedented housing mortgages – some refer to them as “monster mortgages.”

The MNP study noted that one-quarter of Canadians with a mortgage concede they are “in over their head” with their present mortgage payments. Moreover, nearly one-third of homeowners admit they will have pecuniary problems if their housing values drop – two-thirds of Canadians say the nation is in a housing bubble.

“Many are borrowing against their homes and using them to finance lifestyles they simply can’t afford. What’s worse is that many are not making regular payments against the principal, and the threat of an increase in interest rates might make it even harder to make ends meet,” said Grant Bazian, President at MNP LTD, in a statement.

“We’ve been living with this ‘minimum payment mentality’ for far too long. Collectively we need to start looking critically at our debt loads and factoring in interest rate changes to see if the debt amassed is even affordable. For many, it already isn’t.”

Here is the most revealing statistic: 70 percent of Canadians aver that their ability to handle a 100-basis point increase “as less than optimal.”

The central bankers fiddled with interest rates, Canadian consumers were suckers and now the economies will pay.

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