Managing mortgage payments and affording a home aren’t getting any easier for households as geopolitical chaos continues
The US-Iran war took another twist on Monday as Iran reportedly cut off negotiations and vowed to “completely” close the Strait of Hormuz, sending oil prices spiking once more and likely intensifying inflation pressures.
Five-year Government of Canada bond yields, which strongly influence fixed mortgage rates, wobbled but didn’t surge after the latest setback to hopes of a prolonged ceasefire. Still, yet another jump in oil prices marks a fresh hurdle for Canadian consumers who’ve already seen their housing prospects squeezed this year by inflation and higher costs at the till.
Even before the outbreak of the war in Iran, Canadian mortgage holders were navigating a complex set of financial pressures – and Kathy Catsiliras (pictured top), vice-president of analytics and consulting at Equifax, told Canadian Mortgage Professional the turmoil of the past few months has only worsened their outlook.
“Inflation is going up, the cost of groceries has remained high, and now you’ve got the cost of fuel that has surged this year compared to last year,” she said. “That is really, really impacting cashflow and creating that financial stress for many consumers in Canada.”
‘Hot zones’ seeing more mortgage strain
As Equifax’s latest data on delinquencies revealed, the pressure is not distributed evenly with Ontario and British Columbia – perhaps unsurprisingly, given their high price points – seeing much more mortgage stress than other parts of the country.
Average monthly mortgage payments were already well higher in those provinces, Catsiliras pointed out, even before the wave of mortgages coming up for renewal at much higher costs than when they were first originated.
“It’s more impactful for consumers living in hot zone areas like Ontario and BC where they’ve got a higher mortgage amount,” she said. “When you factor in a higher interest rate on that higher mortgage, it equates into a higher monthly obligation.
“So that’s going to impact the consumer and their ability to carry that extra payment while balancing everything else with regards to the cost of living.”
Plenty of Canadians are cutting back on spending to make ends meet, with bankruptcy insolvency trustee Harris and Partners revealing in May that more than 95% said rising costs for essentials like food, housing, and utilities are harming their finances.
And the latest oil price jump likely doesn’t only mean further pain at the pump. It could also send inflation higher, complicating the Bank of Canada’s outlook and potentially pushing interest rate cuts even further into the distance.
Top economists generally expect the central bank to stay on the sidelines even despite Statistics Canada data last week showing the national economy slipped into a technical recession in the first quarter.
Household budgets to face further strain
The fuel price uptick could also have a knock-on effect on food and transport costs across the country, putting pressure on household budgets even more.
“Think about how many consumers have a car and need the car – but also the fact that Canada is a big country and from a transportation perspective we shuttle things around from one area to the other,” Catsiliras said.
“If fuel costs continue to surge, that’s going to impact the transportation industry, getting food from one part of the country to the other, which then unfortunately ends up driving the cost of prices higher.”
A slight plus: non-mortgage debt levels saw a modest pullback in the first quarter, according to Equifax, signalling higher spending discipline even as financial challenges mount.
Still, Catsiliras warned against assuming that will remain a strong trend in the months ahead. “The fact that non-mortgage debt levels have decreased is great, but that’s only based on one quarter of data,” she said.
For now, it seems the unease that’s pervaded financial markets and the Canadian economy is unlikely to ease anytime soon after the latest developments in Iran.
Confident forecasting on anything – fuel prices, the housing market, mortgage costs – is nearly an impossible task, Catsiliras warned. “Unfortunately, we don’t have a crystal ball,” she said. “It can all change tomorrow and fuel prices can drop significantly. So it is something that we’re wary about.”
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