Mar 8, 2021
Sudden five-year mortgage rate spike could be 'recessionary': Tal
The market is second guessing the Fed and at one point the Fed will second guess themselves: CIBC's Tal
One Bay Street economist said five-year mortgage rate growth needs to be slow and steady – or else risk hurting the Canadian economy.
Benjamin Tal, deputy chief economist of CIBC World Markets Inc., told BNN Bloomberg the risk of a sudden rate spike could come from the Bank of Canada if it strikes an overly confident tone on the economy.
“The risk of communicating that everything is fine and there’s no need to worry about inflation is that at one point, people will realize that’s not the case and you will have a step increase in the five-year rate that will be a shock to the economy that potentially can be recessionary,” said Tal in a television interview.
He noted that a gradual rise could help tame hot housing markets in some of Canada’s largest cities which have seen double-digit price increases during the pandemic.
“If you see the five-year rate rising slowly on a gradual basis, the housing market will soften and that will be actually a good thing, not a bad thing,” Tal added.
“Everybody knows that the best way to slow down the market is the five-year mortgage rate. If it goes slowly by another 20-, 30-basis points over time, I think that will do the trick.”