The Canadian Press Published Monday, July 18, 2022 4:01 PM EDT Last Updated on Monday, July 18, 2022 4:01 PM EDT
A senior economist at BMO Capital Markets says the Bank of Canada’s recent move to raise its key interest rate is shaping the real estate market for an even deeper correction next year.
Robert Kavcic says Governor Tiff Macklem’s astonishing one percentage point rise last week was like giving a hammer to the real estate market.
In a note to investors, Kavcic says the increase that prompted commercial banks to raise their preferred rates has made it harder to qualify for a mortgage under Canada’s stress testing rules.
The test sets the rating rate for unsecured mortgages at two percentage points above the contract rate or at 5.25 percent, whichever is greater.
Kavcic says that before the measure, variable-rate borrowers were still rating at 5.25 percent, but it has now changed to about six percent, which he considers “a massive pill to swallow the market.”
Fixed-rate borrowers are rated at around seven percent, which he says will also affect their purchasing power.
This report from The Canadian Press was first published on July 18, 2022.