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Homeowners in British Columbia, Ontario and Alberta are the most vulnerable to a negative economic shock, but household balance sheets have deteriorated the most in Manitoba and Saskatchewan, a new report by Toronto-Dominion Bank warns.

After rising sharply for nearly a decade, household debt levels have been growing at a slower pace since 2011, the result of the federal government tightening mortgage insurance rules combined with interest rates that have hit rock bottom.

Despite the improving picture, Canadian households are now more susceptible to a major economic shock, such as a housing correction or a rapid rise in interest rates, than they were in the years following the 2008 global financial crisis, TD economist Diana Petramala wrote.

Some provinces are much more likely to suffer the effects of an economic downturn than others, TD warned. Hot housing markets in Ontario and B.C. and an oil-fuelled downturn in Alberta have left those three provinces particularly at risk, while a runup in home prices and high levels of new home construction are putting pressure on homeowners in Saskatchewan and Manitoba. Meanwhile, households in Quebec and Atlantic Canada are emerging from a soft housing market in better shape.

British Columbia

B.C. has topped TD’s list for the most financially vulnerable households in Canada for 16 years in a row. With the most expensive housing market in the country, B.C.’s households spend the largest share of their monthly budgets on paying debt, devoting 9 per cent of their income toward interest payments alone. The typical B.C. household would have to spend more than half its income in order to afford an average-priced home. Stretched affordability has meant the province has an above-average number of homeowners who are delinquent on their mortgages, TD says. Households in B.C. hold a disproportionately large share of their overall wealth in their homes, having fewer non-housing financial assets than other provinces. On the bright side, those housing assets are considerable given the soaring cost of real estate in the province. Homeowners have also adjusted to high home prices by renting out portions of their homes to cover their mortgages, TD said.


Soaring home prices have meant that Ontario homeowners continue to spend a relatively high proportion of their income paying the interest on their debts, despite a substantial drop in interest rates over the past decade. Ontario has the second-highest share of households that spend at least 40 per cent of their income on debt payments, behind only Saskatchewan. Strong growth in home prices has meant Ontario remains among the least affordable housing markets in the country, helping to push the province above Alberta to become the second-most financially vulnerable region, according to TD. Despite their high debts, however, Ontario homeowners are the least likely to be behind in their mortgage payments, TD said.


Albertans will be the “litmus test” for economists’ predictions of how prepared Canadian homeowners are for an economic shock, Ms. Petramala wrote. The province has been hit hard by the collapse in oil prices and home prices likely have further to fall. Alberta also has the highest ratio of household debt to income in the country, a result of young, first-time buyers flocking to the province for work. Alberta is one of the few provinces where debt payments have continued to rise faster than incomes even as interest rates have fallen to record lows. One factor working in Alberta’s favour, TD said, is that the province was only starting to recover from an extended post-2007 housing correction when oil prices fell, leaving the province’s housing market less vulnerable today.


Saskatchewan has historically been home to among the most resilient homeowners in the country. But rising home prices and high levels of new home construction have left the province in a more precarious spot. Saskatchewan households have seen their debts rise much faster than their incomes compared to other provinces, Ms. Petramala wrote. The province is the only region in the country where homeowners are spending more of their income on debt payments than they did a decade ago, despite the steady drop in interest rates since then. Nearly 8 per cent of Saskatchewan households spend more than 40 per cent of their income on debt payments. At the same time, home prices have been falling even as the province continues to undergo a building boom; new home construction is six times higher than it was in the early 2000s, the largest jump in the country. Despite concerns about overbuilding in Saskatchewan, housing starts rose once again in the province last month.


Manitoba has long been the country’s most stable housing market, with among the most affordable housing and lowest house-price-to-income ratios in Canada. That has changed in recent years as a hot housing market has driven home prices up by double-digit rates for several years in a row, a sign of a “bubbly market,” Ms. Petramala wrote. The rate of new home construction has risen twice as fast in Manitoba as the rest of the country. Even so, Manitobans have among the lowest household debts in the country and the share of income homeowners spend on debt payments has dropped the fastest out of any province since 2008. “While financial vulnerabilities are rising fast in Manitoba, the province still has a long way until it catches up to indebtedness levels reached in other parts of the country,” she wrote.


Having suffered through a soft housing market for the past two years, Quebec households are now strengthening their balance sheets. The province has the smallest share of homeowners who spend at least 40 per cent of their income on debt payments. Having come through a housing correction, home prices in the province are now fairly valued, Ms. Petramala writes. Coupled with a steadily improving economy, Quebec households appear to be in their best financial shape in a nearly decade.

Atlantic Canada

Atlantic Canada has the distinction of being the least vulnerable to an economic crisis. But only because the household balance sheets in other provinces have deteriorated more quickly than those in Eastern Canada. A lengthy housing correction has meant that Atlantic Canada now has the most affordable home prices in the country, along with one of the lowest debt-to-income ratios. It’s not all good news. TD warns that debts have been rising faster than assets as homeowners rely more heavily on debt amid rising unemployment. Atlantic Canada also has the highest share of homeowners who are at least 90 days behind on their mortgage payments, at more than twice the national average.