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A Canadian Housing Bubble? Two-Thirds Say It's Real

Nearly half of Canadians are worried about what interest rate hikes will do to their mortgage payments.

07/11/2017 16:25 EDT | Updated 07/11/2017 16:48 EDT

A majority of Canadians say there's a housing bubble, but only a minority believes it will burst in the next year, a new survey has found.

The survey from Ipsos, carried out for consumer insolvency firm MNP Ltd., found 67 per cent of Canadians agree that the country is experiencing a housing bubble, but only 43 per cent think it's going to come to an end in the next year.

And with the Bank of Canada expected to raise interest rates on Wednesday, a near-majority of Canadians (45 per cent) are worried about what that will mean for their finances.

"Many are borrowing against their homes and using them to finance lifestyles they simply can't afford," MNP Ltd. President Grant Bazian said in a statement.

"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."

Petmal via Getty Images
Two-thirds of Canadians believe the country is experiencing a housing bubble, a new poll has found.

With Canadian debt loads near record highs, even relatively small shifts in interest rates could have a noticeable impact on households.

According to estimates from mortgage comparison site Ratehub, the mortgage on a $750,000 home (roughly the average price for all property types in Toronto) would be $83 more expensive per month, or $996 more expensive per year, after a single 0.25-percentage point hike in mortgage rates.

The Bank of Canada is expected to raise rates Wednesday by that much, and lenders typically pass all the cost of higher rates to borrowers.

If interest rates were to be hiked by 0.25 percentage points three times, as analysts predict the Bank of Canada will do over the next 18 months, the additional cost on that Toronto home would be $254 per month, or $3,048 per year, Ratehub estimated.

"We've been living with this 'minimum payment mentality' for far too long."Grant Bazian, MNP

According to the MNP study, 77 per cent of Canadians would struggle with a $130 increase to their monthly debt payments. Forty-four per cent say they are $200 per month away from financial insolvency.

Even without any interest rate hikes, more than a quarter (27 per cent) of respondents said they were "in over their head" with their mortgage payments. Quebecers are most likely to say they are "in over their head" (35 per cent), followed by British Columbians (32 per cent), Albertans (31 per cent), Atlantic Canadians (25 per cent) residents of Saskatchewan and Manitoba (23 per cent) and Ontarians (21 per cent).

"We've been living with this 'minimum payment mentality' for far too long," Bazian said.

"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."

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