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Amid a drop in inflation, there’s speculation from some financial analysts that the Bank of Canada may start to lower the country’s benchmark interest rate, however one economist is warning that even with the possibility of cuts, homeowners should expect “big increases” to mortgage rates.
“It’s very unlikely we’re going back to the zero interest rates that we were at,” David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, told Your Morning’s Anne-Marie Mediwake on Tuesday. “Frankly, that’s way higher than most Canadians are used to.”
The Bank of Canada has been consistently hiking its benchmark interest rate since March 2022 and Macdonald says most Canadians have been “protected” from the higher rates because they have been on a fixed-rate mortgage that hasn’t been renewed yet.
“It’s just going to be basically a big shock for any Canadians over the next couple of years,” Macdonald says.
Canada is dealing with a brutal housing supply shortage, Macdonald said, noting that even with a year of “big rate increases,” house prices haven’t “come down that much,” which is putting additional pressures on the system.
“Rent has gone through the roof,” Macdonald says. “Landlords have mortgages and they pass their increases on to tenants.”
The housing crisis and mortgage crunch is also having broader impacts on the economy, according to Macdonald, and with so many Canadians paying “that much more” in rent and mortgage interest, there’s the possibility of “real trouble” if consumer spending drops.
“We’re at the worst point in the cycle.”
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