While we should never get complacent, I thought it important to share some facts about our indebtedness…or lack thereof. Beneath the headlines about bubbly prices in Vancouver, with Toronto Real Estate heating up as well, there are some sobering and maybe comforting facts about our financial stats when it comes to taking on debt and honouring that debt. Check out the facts below and pat yourselves on your backs. You deserve it!!
*We are in pretty good shape when it comes to assessing factors that account for most defaults: mortgage holders that carry a debt-service ratio of more than 40% and those with less than 20% equity in their house.
* Just over 6% of households have a debt-service ratio of more than 40% (well below where we were in 2003). Most of these households are in Vancouver, followed by Toronto.
*A little more than 17% of homeowners have less than 20% equity in their homes and more than 80% of these homeowners are first time buyers.
*These two segments (high debt ratio and lower equity positions) make up only 4.6% of TOTAL MORTGAGES….and historically, the rate of default in these groups is well below 1%!! It is believed that short of a macro shock (like a huge and immediate surge in interest rates), there does not appear to be the risk of large scale forced selling that would typically trigger for a precipitous plunge in the national average sale prices.
*In summary, while house prices are likely to adjust as interest rates eventually climb, the pace correction will be gradual. This could still entail a period where housing underperforms other assets as an investment class, but as your Toronto Realtor is always quick to remind you…you can’t sleep, entertain or collect cherished memories in your Mutual Funds portfolio!! Well done you prudent and responsible homeowners…you get an A++!