Last week, the CMHC published their fall 2023 edition of the Residential Mortgage Industry Report
In it, the author Tania Bourassa-Ochoa draws from the CMHC’s national mortgage data to put specific figures to the coming wave of mortgage renewals in 2024 and 2025. In the first half of 2023 about 290,000 mortgages were renewed into the higher rates of today, but over the next 2 years there will be an estimated 2.2 million mortgages renewing. According to the report, these mortgages will see their monthly payments increase by 30-40 per cent, which works out to roughly $15 billion dollars being redirected from household budgets to instead pay mortgage interest.
As we speculated in our post back in August, the coming wave of fixed rate mortgage renewals into these substantially higher interest rates is going to force a significant amount of Canadian mortgage holders to redirect a substantial amount of what was ‘disposable income’ (money that has been flowing into sectors like travel, restaurants and entertainment, luxury goods, etc) towards paying the interest on their mortgage debt. $15 billion is a large amount of money to get sucked out of consumption spending, and this should have a big impact in lowering inflation and a knock-on effect in cooling the labour market.
While the Bank of Canada (BoC) will do what it has to in order to get inflation back into the 2% target range, it will also pivot quickly once that goal is achieved in order to minimize major economic harm and a deep recession. We know that inflation is already coming down based on the interest rate increases implemented by the BoC up to this point, and in fact the last few increases have still not had their full effect on the economy. With the extra looming impacts that mortgage renewals are going to have on the economy over the next 2 years, we believe the BoC is unlikely to need to raise their policy rate further and will in fact begin to cut slowly beginning in the second half of 2024 and through 2025 to help fight off a deep recession.
From a mortgage strategy standpoint, it looks very likely that we are at the peak of the interest rate cycle and we should see both fixed and variable interest rates slowly falling over the next 2 years. If your mortgage is renewing soon, you should consider a strategy for a short term renewal (a 1 to 3 year plan) to tide you over until interest rates have come down, then lock into a longer term. While we likely won’t see rates come back to the historic lows of 2020, we do think that 5 year fixed rates could come back down under 4% by the end of 2025.
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