The worst effects of the low-rate environment are now becoming apparent
Canadian mortgage rates are likely to surge higher, decelerating housing market demand over the next few years, according to Moody’s Analytics.
Moody’s recently predicted that Canada’s mortgage rates will reach their highest levels since the global financial crisis of 2009. Five-year fixed rate offerings are expected to reach 4.25% by the end of 2022, and then rise to 5.5% by the end of 2024.
“The forecast conservatively assumes the spreads shrink as rates rise, producing fewer mortgages,” Better Dwelling said in its analysis of the Moody’s report. “This is due to increased liquidity, as demand for credit falls faster than the supply of credit.”
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The record-low rate environment that characterized much of the previous decade is now yielding its worst effects, said Brendan LaCerda, associate director and senior economist at Moody’s Analytics.
“Clearly, consumers were attracted by these low interest rates and really ramped up their borrowing. However, that pulls forward a lot of demand,” LaCerda said.
“As these interest rates rise, that growth rate of mortgage debt is really going to diminish. Consumer appetite for debt will diminish – quite significantly.”
Moody’s predicted that annual mortgage credit growth will drop to 4% by the end of 2022, and then further decline to sub-2% levels by 2025.
“Originations are going to be much slower through this tightening cycle than anything we’ve seen in recent history,” LaCerda said. “Households are carrying a lot of debt already. There’s not a lot of appetite to take much more on.”
