Posthaste: There's now a bigger risk to Canada's economy than the mortgage renewal cliff

financialpost.com:

The mortgage renewal cliff has loomed like a dark cloud over Canada’s economy ever since its central bank began aggressively hiking interest rates back in 2022.

The fear was that homeowners who took out mortgages at the rock-bottom bargains of the pandemic would struggle to make payments once they were forced to renew at higher rates.

But now an economist says that risk is fading and a new one is taking its place.

Borrowers are already getting relief from 75 basis points of interest-rate cuts by the Bank of Canada, with the expectation of more to come as early as next week.

Two-year government bond yields, which drive mortgage terms of one to three years, have now dropped lower than two years ago, meaning not everybody is going renew at higher rates in 2025, said Nathan Janzen, assistant chief economist of the Royal Bank of Canada.

Five-year fixed mortgage rates remain above previous levels, but the increase in payments will be smaller because of the Bank of Canada cuts.

RBC estimates total mortgage payments in 2025 will increase by only 0.1 per cent of total disposable income.

Homeowners also have other supports to help them cope with renewals. Home prices have remained high, and this “significant equity” gives them more options to refinance at a longer amortization, making monthly payments more manageable.

But while the risks of the mortgage cliff fade, another risk to the economy — unemployment — is gathering steam as labour market data weakens, said Janzen.

Unemployment in this country has risen from a low of 5 per cent in 2022 to 6.5 per cent in the latest reading, and RBC expects it will continue to rise to 7 per cent by early 2025 — more than a percentage point above pre-pandemic levels. A 1 percentage point rise