Posthaste: Pain of Canadians' mortgage payment shock is not over — not by a long shot
There’s been a lot of hope in the air lately that the Bank of Canada is getting close to cutting interest rates.
When the central bank held rates at 5 per cent at its meeting earlier this month, governor Tiff Macklem said a June cut was “within the realm of possibilities,” and inflation data shortly after appeared to support that.
After all it has been a long, tough haul for indebted homeowners since the bank began hiking its benchmark rate early in 2022.
Five-year mortgage rates have surged from lows of 3.2 per cent in 2021 to 6.4 per cent in the fourth quarter of 2023, more than doubling mortgage payments, according to a new study by Oxford Economics.
“This has weighed on consumers’ pockets, but our calculations suggest that the mortgage payment shock is not over yet, said Oxford economists Callee Davis and Tony Stillo.
Even with interest rates expected to ease in the second half of this year, Oxford forecasts that mortgage payments will increase by another 6 per cent to $156 billion by the end of 2024. By the end of 2027, these payments will have risen 18 per cent to $173 billion.
These are big numbers and will take mortgage payment’s share of disposable income to a peak of 9.3 per cent by mid-2025 before it begins to ease, the highest on records going back to 1990, says Oxford.
The hardest hit will be low to medium-income households, which have little spare income, excess pandemic savings or ability to take on more debt.
According to Oxford, these households hold about 45 per cent of the mortgage debt in this country, with higher-income households accounting for 55 per cent.
Higher income households, with more disposable income, are obviously better equipped to deal with rising mortgage payments. For less wealthy
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