Rising Rate Environment Worries Canadians

By: Neil Sharma

Rising Rate Environment Worries Canadians

Tags: Homes in Toronto, Houses, For Sale, House Prices

 

Canadians are getting chary about rising interest rates.

According to the MNP Consumer Debt index, Canadians are keeping an eye on the Bank of Canada’s every move concerning rate hikes. In a survey conducted by Ipsos on MNP Ltd.’s behalf, nearly half of respondents are feeling the effects of rising rates.

However, according to MNP’s Senior Vice President David Gowling, millennials are the most affected by rate hikes because they’re most likely to be at peak mortgage and credit card debt.

“Each .25 increase doesn’t seem like too much, but it’s been up to 1.75% over the last year and a half,” he told REP. “That comes home to roost for anybody with mortgages coming up. That rate was fixed before the increases, but when they go to renew, they’re going to feel the full effect of the rate increases.”

The rate hikes will be particularly acute for mortgage holders because they’ll have less money to spend repaying other debts.

“They’re concerned about how much of their incomes are going to pay their debt, and the impact will be on mortgages because that’s where those increases have the biggest impact on monthly cash flow,” said Gowling. “It starts to have a domino effect as that extra cost eats into their ability to pay credit debt because credit cards are at a higher interest rate.”

At 65%, Atlantic Canada expressed the most concern about rising rates, and that could be because job creation occurs at laggard pace compared to, say, Ontario.

“With Ontario, we’ve had good employment rates and the economy has generally been in a good place, and that’s why you see a lower number [52% of respondents expressed trepidation at rising rates] when you compare to other provinces,” continued Gowling.

Brett Starke, head of the Starke Realty Team, is receiving more queries about how interest rates will affect home purchasing decisions, mostly from millennials. However, he notes that they’re an engaged demographic.

“I haven’t noticed anybody worrying but they’re definitely bringing it up,” he said. “I find most millennials now are very educated about the market and interest rates, and although rates going up, my clients at least understand that they’re at an all-time low.”

While the Bank of Canada typically raises rates by 25 basis points at a time, it will likely have a chilling effect on the real estate market as the hikes accumulate. Starke, however, sees it benefiting homeownership.

“It might slow down the market a little bit, but I think that’s a positive thing for millennials because it will let them get into the market,” continued Starke. “Hopefully it will slow down the crazed multiple offers where there are eight offers for a property and maybe come down to two or three offers, because it will give them an opportunity to get into something.”