Canada's worst spenders

British Columbia has been Canada's real estate debt champion since at least 1999

There’s been plenty of speculation that Vancouver’s hot housing market is in bubble territory, and as interest rates rise, that view is going to be put to the test. A new Toronto-Dominion Bank report says that one in 10 British Columbia households could find themselves scrambling to pay their bills if the Bank of Canada ups rates, as TD predicts it will—up to three per cent by the end of 2012.

The province has been Canada’s real estate debt champion since at least 1999, and it is the only one where the average savings rate is negative, according to TD. Vancouver in particular seems to most resemble the housing run-up seen in the U.S. Two weeks ago, Robert Shiller, an economist at Yale University who correctly forecast the U.S. housing bust and helped develop the influential Standard and Poor’s Case-Shiller real estate index, likened Vancouver to San Francisco, one of the areas worst hit by the slump in the States. Compare that to Manitoba, where families have strengthened their balance sheets since 2006, and will be putting 40 per cent less of every dollar toward debt repayments than households in B.C., notes TD.

But despite penny-pinching Manitobans, debt is still a Canada-wide problem. In Alberta, 90-day mortgage delinquency rates are rising faster than in any other region (though they are still at relatively low levels), reports TD. And Canadians everywhere have blissfully continued to pile up home-related debt in recent years, pushing average housing prices up by nearly 20 per cent in 2009 (followed by a mere increase of roughly three per cent in 2010), according to the Canadian Real Estate Association. Economists and bankers worry that many Canadians will be woefully unprepared to cope with increased borrowing costs.

According to Shiller, the same forces that inflated home prices south of the border are probably at play in Canada as well. Yet most commentators, including TD, are refraining from predicting a full-fledged bust of our housing market. And the Harper government’s recent tightening of borrowing conditions in the real estate sector seems to have strengthened expectations, or at least hopes, that the bubble will deflate gradually.

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