Housing crash? So what

A debt-rating agency, DBRS, conducted a ‘worst case scenario’ study, which indicates Canadian households could tolerate a 40% drop in housing prices without having to default on their mortgages.

Policy makers are increasingly concerned about what could happen if the record low interest rates began to rise or similarly staggering housing prices began to fall.

The average Canadian household has a net-worth of $400,000 and home equity accounts for about 38%. Housing prices could then fall by 40% and the household could withstand it, providing other assets remain intact.

The report also says Canada’s residential mortgage markets have continually grown since 1990. Since then total household debt in Canada has grown 381% to $1.6 trillion.

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Mortgage debt has made a serious impact on household disposable income. Debt there increased 73%-to-153%.

The goal of the study is to make Canadians feel more secure with their debt levels. Even if the housing bubble bursts, they won’t be forced to abandon their homes; they will simply have paid too much for them.

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“Barring a nationwide economic downturn, the impact of an interest rate increase or any price correction on mortgage defaults should be localized, with more elevated risk in certain markets and segments.” the study says.

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