Karen Savoy / Sputnik Photography
House with a ‘for sale’ sign in the yard.
The Bank of Canada has kept the policy interest rate at 5 per cent since Oct. 25, keeping mortgage interest rates at around 5 per cent.
Currently, 62 per cent of Canadians are spending 37 per cent of their pre-taxed income on housing, according to a survey done by ratefilter.ca. The Canada Mortgage and Housing Corporation defines affordable housing as costing less than 30 per cent of a household’s pre-tax income.
“This is too high to be sustainable,” said Andy Hill, co-founder of online mortgage marketplace, ratefilter.ca. He said the unchanged policy interest rate doesn’t provide a lot of relief, but it “shows some light at the end of a very dark tunnel for a lot of Canadians.”
According to the Bank of Canada’s monetary policy report, the inflated interest rates will be at 3.5 percent in the middle of 2024. The bank hopes to return to the target of 2 per cent interest by 2025.
In 2024 and 2025, 45 per cent of all Canadian mortgages are expected to renew, according to the CMHC. The total amount of renewed mortgage loans will equal over $675 billion. The renewed fixed-rate mortgages will face interest shock since most were contracted during the record-low interest rates of 2020 and 2021.
The higher interest rates have affected investments in housing. In the second quarter of 2023, the total investment in housing was 28 per cent less than the peak of residential investment in 2021.
Canadians will have to “make big changes to their lifestyle, because they’re not going to have the disposable income that they’re used to having,” said Andrea Harris, a local resident, about her mortgage payments. She has made changes to her lifestyle, such as eating out less.
Young home buyers face a difficult housing market.
“Especially for first time home buyers, its super tough, prices are so high,” said Hill.
Not only are homeowners impacted by the rising interest, but so are renters. The price for rental accommodations rose by 6.4 per cent in August since the beginning of 2023, according to Statistics Canada. The rising prices of rent are influenced by both housing affordability and high rates of immigration.
The short-term interest rates have been steadily increasing since the pandemic. In June 2022, interest rates were at 1.5 per cent, keeping mortgage rates around 1.5 per cent.
“In August, two years ago, I was paying $116 a week and that’s now $397,” said Harris.
The next interest rate announcement by the Bank of Canada will be on Dec. 6.
This article was originally published in print Volume 23, Issue 4 on Thursday, Dec. 7.