The impact of renewals could amount to as much as $34 billion by 2027, new report says
Upcoming mortgage renewals at high interest rate levels will potentially lead to a more dramatic slowdown in the Canadian economy, according to an analysis by Keefe, Bruyette & Woods.
The report predicts that if all current mortgages are renewed at today’s elevated interest rates, the impact of renewals would amount to as much as $34 billion by 2027.
“The resulting hit to both consumer spending and economic growth would be meaningful, indicating that a ‘higher rates for longer’ theme could easily push Canada into a more severe recession than is currently expected,” the analysis noted.
A reduction of 100 basis points to the Bank of Canada’s benchmark policy rate could pull the economic impact down to around $23 billion. The report said that this stresses the need for rates to drop markedly to “fully eliminate higher mortgage renewals.”
“Other potential mitigating factors include higher wage inflation and deposit rates, both of which are likely to remain elevated if inflation and rates remain higher, as well as forbearance by the banks (i.e. allowing borrowers to renew loans with a longer amortization period),” the report stated.
“As such, we believe the trajectory of interest rates will remain a key focus for Canadian bank investors.”
Dawn Desjardins, Chief Economist at Deloitte Canada, believes that the Canadian housing market's sluggishness is likely to persist due to the impact of higher interest rates on the economy.
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 2, 2023
Read more: https://t.co/R2Kt9Li5s3#mortgageindustry #housingmarket #interestrates
More and more Canadians are concerned about higher renewal payments
A recent poll by RATESDOTCA and BNN Bloomberg found that around 62% of Canadian homeowners are concerned about higher payments come renewal time. This share has increased by 9% from October 2022.
Another 31% reported being “very concerned” about higher renewal payments, up by 19% from October 2022. Young Canadians were among those that expressed the greatest anxiety, with 73% of people aged 18-34 saying that they are concerned about higher payments (up by 10%).
“It looks like we won’t see significant rate decreases for some time,” RATESDOTCA said. “Homeowners will likely face mortgage rate increases at renewal that could severely tighten household budgets that are already stretched thin by months of inflationary price increases.”
One in five (21%) Canadians said that, currently, they do not have plans in place to absorb these likely increases.
