“Get Ready: Big Increases to Mortgage Rates Expected Despite Drop in Inflation”
With the recent drop in inflation, there has been talk among financial analysts about the possibility of the Bank of Canada lowering the country’s benchmark interest rate. However, one economist is cautioning homeowners to brace themselves for “big increases” in mortgage rates, even if there are cuts.
The Bank of Canada has been steadily increasing its benchmark interest rate since March 2022, leading to concerns about the impact on homeowners. David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, believes that the current interest rates are significantly higher than what most Canadians are accustomed to. His warning comes as a stark reminder that the days of zero interest rates are unlikely to return.
Potential Shock Awaits Homeowners
Macdonald points out that most Canadians have been shielded from the higher rates because they are on a fixed-rate mortgage that has not been renewed yet. However, he predicts that there will be a “big shock” for homeowners in the coming years as they face the prospect of significant increases in mortgage rates.
Housing Supply Shortage and Rising Prices
Adding to the concern is the ongoing housing supply shortage in Canada. Despite the significant rate increases, Macdonald notes that house prices have not dropped significantly, exacerbating the pressures on the housing market. This has led to a surge in rent prices, as landlords, burdened with mortgages, pass on their increased costs to tenants.
Broader Economic Impact
The housing crisis and mortgage crunch are not just localized issues, according to Macdonald. He warns that the ripple effects are being felt across the economy. With many Canadians facing higher expenses in the form of rent and mortgage interest, there is a risk of significant trouble if consumer spending declines. Macdonald believes that the country is currently at the “worst point in the cycle,” signaling potential economic ramifications.
In conclusion, despite the prospect of a drop in inflation and potential cuts to the benchmark interest rate, homeowners should remain cautious. The warning from economist David Macdonald serves as a reminder that even in a changing economic landscape, the impact of increased mortgage rates can be far-reaching and have long-term consequences. As the housing crisis continues to unfold, it is essential to consider the broader implications on the economy and the financial well-being of Canadians.