With many expecting the Bank of Canada to announce an interest rate hike this week, a new report shows that hike could have serious consequences for over a quarter of Canadian home owners.
As first reported by BNN, a study by MNP shows many Canadian home owners are “in over their heads” when it comes to mortgage payments.
Says the report, “Three in ten home owners say that they will be faced with financial difficulties if the value of their home goes down. Even if home values don’t decline in the near future; more than a quarter of Canadians (27 per cent) who have a mortgage agree that they are ‘in over their head’ with their current mortgage payments.”
As concerning as that is, the real situation could be even worse.
The report notes that an even larger percentage of Canadians (77%) could be facing financial difficulty from increasing interest rates:
“Over seventy percent of Canadians rate their ability to cope with a [one per cent] interest rate increase as less than optimal,” says the report. “The vast majority of Canadians (77 per cent) would have difficulty absorbing an additional $130 per month in interest payments on debt.
The hollow economy
The increasing fragility of the economy is a sign of how hollow it has become. As manufacturing and the production of tangible goods has eroded, and as wealth has become concentrated in the hands of fewer and fewer people, debt has become the driving force behind our economic growth.
However, debt makes an economy inherently fragile, and even a slight shock can cause the system to collapse.
Without a fundamental shift in our economy that focuses on strengthening domestic production, putting more money in the hands of consumers, and ensures widely shared prosperity, the fragility of our economy will continue to grow, and we will continue to face the rising risk of a recession, or something even worse.
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