That economic softening has been driven in part by trade uncertainty with the United States, keeping the BoC’s overnight rate lower than earlier projections expected and providing modest relief to renewing borrowers.
“I think it’s a little bit of a silver lining of the international situation that interest rates, and hence mortgage rates, are a little bit lower than where we were forecasting,” ab Iorwerth said. “If the economy had been going gangbusters, the interest rates at which households would have been renewing their mortgages might have been quite a bit higher.”
Canadians’ rate sensitivity on the rise
A byproduct of the current market, though, is the reality that the sensitivity of Canadian households to interest rates has increased, according to ab Iorwerth – partly because of a wider move toward variable rates or shorter-term fixed-rate mortgages.
That means any unexpected rise in borrowing costs, whether driven by a resurgence in inflation, a trade shock, or instability in global oil markets, could transmit more quickly through the mortgage system than it might have a decade ago.
And with no end in sight to the ongoing US-Iran war – and last year’s trade turmoil barely easing – the economy’s storm clouds could linger for a while yet.