B.C. homeowners carrying too much debt!

December 19, 2009

 In a Vancouver Sun article published on December, 16, 2009 “Canadian home buyers may be setting themselves up” taking on too much debt than they can carry.

“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.

In the statement, 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.

It’s a matter of time when interest rates will rachet up.

For example, a five-year variable rate mortgage at 2.25 per cent on $300,000 would carry a monthly payment of about $1,031, assuming a 35-year amortization period. A move to 5 per cent would boost the payment to $1,504. It’s a 46% increase and $473 a month most home buyers wouldn’t be able to accommodate.

nov09trend.JPG Will a price correction happen?

It’s difficult to see how home prices can continue to climb, when increasingly more home buyers are feeling uneasy over high home prices. The media are also sounding the alarm on the “housing bubble” developing in Canada. Higher interest rates sometime in the future will result in more selling and less buying. The drop in sales can be just as dramatic as the run up and recovery in home prices the past 9 months.

The housing market will be closely monitor and reported back here. Until the supply and demand ratio change significantly, the market is in favour of seller. A balance housing market will only happen when the current tight supply of new listings loosen up to move from around 2.5 to 5 or 6 months. This is not expected to happen until the second half of 2010.

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