Canadian Households and Housing Market Show Resilience in Response to Recent Interest Rate Hike - Fifth Avenue REM mediaiqdigital tracking pixel
Market Intelligence | July 13, 2023
The Bank of Canada raised its interest rate to five percent. Notably, this is the second hike since June. The aim is to manage inflation, now at 3.4 percent, down from 8.1 percent in June 2022. However, the target remains two percent.

Factors Behind Price Decline

Various factors caused the price decline. Firstly, the impact of the Russian invasion of Ukraine is fading. Secondly, raw material and industrial prices are down. As a result, the economy grew by 3.1 percent in Q1 2023. Specifically, household spending on services drove this growth.

Robust Job Market

Job creation followed economic growth. Consequently, there are many job opportunities, but few workers. The unemployment rate rose to 5.4 percent in June. Despite this, it remains below the pre-pandemic average of 5.7 percent.

Managing Living Costs

Mortgage interest rates increased living costs. Furthermore, grocery prices rose nine percent year-over-year in May. Thus, effective financial management is crucial now.

Stabilizing Price Growth

Encouragingly, price growth in durable goods slowed. Car and furniture prices dropped. Additionally, cellular service prices fell 8.2 percent last year.

Resilience in Housing Market

The housing market showed resilience. Importantly, the number of mortgages in arrears remains low. This reflects the financial stability of households.

Effects of Interest Rate Hike

Households must note the recent interest rate hike. The prime rate is now 6.95 percent, up from 3.70 percent in June 2022.

Adjusting Mortgage Strategies

Homeowners with variable mortgage rates will feel this hike. Consequently, they must spend more on debt repayment, less on essentials.

Shifting Mortgage Preferences

Interestingly, Canadians prefer shorter-term fixed-rate mortgages. They expect rates to decrease soon. Therefore, less than 15 percent of new mortgages are for five years or longer.

Extending Amortization Periods

Households extend amortization periods to manage higher rates. This approach reduces monthly costs and avoids missed payments. As a result, over 25-year mortgages are now common.

Outlook on Inflation and Interest Rates

Inflation is expected to soften. Meanwhile, the current interest rate will likely stay stable this year. The next inflation update is on July 18. For now, the economy should avoid a recession. Finally, inflation and rates will likely soften in 2024.

With files from Scott White

Share this post

Related posts

View all news