Shomporko Online News Desk: As symptoms of homebuyer fatigue emerge in Canada’s housing market, some economists are looking ahead to another factor that is widely expected to dampen the real estate boom: rising interest rates.
Several economists anticipate the Bank of Canada will begin hiking its trend-setting interest rate sometime in the second half of 2022, as economic activity picks up again amid rising immunization rates and signs of inflation.
The question is how rising borrowing costs would impact the housing market, which now accounts for a sizable portion of the country’s $2.4 trillion economies.
“That’s the number one issue facing the Canadian economy: the increased sensitivity to higher interest rates,” says Benjamin Tal, deputy chief economist at CIBC.
With many Canadians shouldering large mortgages, even a small increase in interest rates would have a significant impact on household balance sheets, he warns. An increase of just 1.5 percentage points in interest rates could double the monthly mortgage payment for some homeowners, he says.
The Bank of Canada has left its key interest rate at an historic low of 0.25 per cent since March 2020, when the central bank quickly slashed borrowing costs to soften the impact of the economic crisis linked to the COVID-19 pandemic.
Higher interest rates are widely expected to provide a welcome breather from breakneck home price growth, Tal says.
“Even a slight increase in interest rates would be enough to slow the market down – and that would be a good thing,” he argues.
However, Tal and other economists warn that too much of a good thing could expose the Canadian economy to greater vulnerabilities.
Because of the high level of debt, households could be forced to devote a significant portion of their income to mortgage payments if interest rates rise one to two percentage points, according to Diana Petramala, senior economist at Ryerson University’s Centre for Urban Research and Land Development.
Source_thestar.com
