19 January 2018

Almost 70% of Canadian mortgages come with a fixed rate, but most renew a few times during their 25- or 30-year amortization term. About 47% will renew within the next year, and it means they will get the current extremely low interest rates.

“That’s why, in our opinion, it will take more time than we expected to see the full impact of rate hikes, and 2019 will be more significant for this issue,” – noted Mark Chandler, Royal Bank of Canada.

The national economic growth has been fuelled by Canadian consumers for years already. They poured so much money into the real estate market, that many started worrying about a possible bubble. In addition to it, a debt-to-income ratio reached the record high level of 171%. It means that households owe $1.71 for every $1 of their disposable income.

After three rate increases in seven months, the central bank expects consumption to moderate, as higher debt costs usually make consumers cut their expenses. Nevertheless, the bank’s promise to raise rates gradually may prolong the debt marathon.

“They predict lower consumption in the future, but there’s a strong possibility that consumers got used to large homes and cars, so they can be much more resilient than anyone thinks,” – said Jean-Paul Lam, an economics professor at the University of Waterloo.

“As long as we have cheap loans available at the market and the economy keeps showing great performance, I don’t think the debt levels will start decreasing.”