May 18, 2023
Canada's housing market is taking the brunt of rate hikes: Expert
, BNN Bloomberg
BoC's financial systems review today proves they will not hike again: Economist
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The Bank of Canada has flagged the growing risk higher borrowing costs are having on Canadian households, a sentiment that one expert argues will keep the central bank from raising rates any higher.
In the BoC’s Financial System Review released on Thursday, the bank stated it is concerned with Canadians ability to face future financial pressures as mortgages are due to renew in the coming years and homeowner equity has dropped with the recent decline in housing prices.
“It suggests that the housing market is taking the burnt of interest rate increases,” John Silvia, founder of Dynamic Economic Strategy, told BNN Bloomberg in an interview on Thursday.
He stated that since Canadian households are on the frontline of interest rate adjustments, and will undoubtedly face challenges going forward, he does not foresee the BoC raising rates any further.
The central bank report detailed that the median debt service ratios (DSRs) for homebuyers has increased dramatically. Last year the DSR rose from 16 per cent to more than 19 per cent, while the share of new mortgages with a DSR of more than 25 per cent increased from 12 per cent to 29 per cent. The data reveals that Canadian borrowers have receded financial flexibility.
As for the possibility of the North American central banks easing some these pressures with rate cuts, Silvia ruled it out.
“The bet that the U.S. Federal Reserve or that the Bank of Canada would lower rates is out of the question, it’s just not going to happen,” he stated.
He pointed to the elevated levels of inflation as the main reason against lowering rates in this environment.
In fact, Canada’s latest consumer price index revealed an uptick in inflation to 4.4 per cent for April, according to Statistics Canada. This figure was higher than economists had anticipated.
Silvia added that the central banks are dealing with sticky inflation that is likely to be here for a while, furthering the case to remain firm in their monetary policy approach.
“My bet is they’ll retain a pause,” he said.
In the BoC’s Financial System Review released on Thursday, the bank stated it is concerned with Canadians ability to face future financial pressures as mortgages are due to renew in the coming years and homeowner equity has dropped with the recent decline in housing prices.
“It suggests that the housing market is taking the burnt of interest rate increases,” John Silvia, founder of Dynamic Economic Strategy, told BNN Bloomberg in an interview on Thursday.
He stated that since Canadian households are on the frontline of interest rate adjustments, and will undoubtedly face challenges going forward, he does not foresee the BoC raising rates any further.
The central bank report detailed that the median debt service ratios (DSRs) for homebuyers has increased dramatically. Last year the DSR rose from 16 per cent to more than 19 per cent, while the share of new mortgages with a DSR of more than 25 per cent increased from 12 per cent to 29 per cent. The data reveals that Canadian borrowers have receded financial flexibility.
As for the possibility of the North American central banks easing some these pressures with rate cuts, Silvia ruled it out.
“The bet that the U.S. Federal Reserve or that the Bank of Canada would lower rates is out of the question, it’s just not going to happen,” he stated.
He pointed to the elevated levels of inflation as the main reason against lowering rates in this environment.
In fact, Canada’s latest consumer price index revealed an uptick in inflation to 4.4 per cent for April, according to Statistics Canada. This figure was higher than economists had anticipated.
Silvia added that the central banks are dealing with sticky inflation that is likely to be here for a while, furthering the case to remain firm in their monetary policy approach.
“My bet is they’ll retain a pause,” he said.
