A new report released on Tuesday suggests that rising home values have pushed Canadians to a record level of net worth relative to their disposable income. The average Canadians household has a net worth of $726K including $263K in home equity. The average household has 74% equity thanks to steady property appreciation. That’s 6-15% above the U.S. equity ratios before the U.S. housing market crash in 2007.

The good news is that the ratings agency says even if the market crashed 20-40%, Canadian household equity would only decrease to 67.5-56.7%.

Regarding debt, the amount of household disposable debt allocated to mortgages has been relatively stable at 6.1% since 2005. The amount of disposable income that goes towards interest has decreased to 3.1% with more being applied to amortization and principal.

If interest rates increase by 2% it is estimated that the GDSR (Gross Debt Service Ratio – mortgage payments, property taxes, heating costs and condo fees/income) will climb from 44-50% for people with conventional mortgages and 50-58% for high-ratio mortgages. To put this into perspective, the federal government put a cap of 39%. CMHS says homebuyers with CMHC-insured mortgages had an average GDSR of 23.7% as of Sept. 30, 2016.

It is predicted that if home prices continue to go up, unfortunately fewer and fewer familie will be able to qualify for an insured mortgage.

If you are interested in purchasing a home, call Robert for free, unbiased, no-pressure financial advice at 905-574-9200 Ext. 215.