“Canadian interest rates have bottomed. Most particularly, mortgage rates have bottomed,” says Dr. Sherry Cooper, chief economist for Dominion Lending Centres
. “With 70% of Canadian households already owning their own homes and housing affordability declining – with the bottoming in mortgage rates and the rise in house prices – lending activity will inevitably slow as will the rise in the price of homes, which has continued strong in Vancouver and Toronto, particularly in the single-family sector.”
The growth in mortgage lending has likely peaked, or will very soon, Dr. Cooper told MBN. Bank of Canada data backs up her observations, showing that the growth in the number of mortgages has slowed this year, although dollar volumes continue to accelerate owing to house price increases.
With the high price of homes pushing people into the rental market, higher lending rates will only speed up the process.
And in turn, place pressure on those already burdened with a lot of household debt.
“Roughly 10% of Canadian home-owning households have high enough debt servicing costs relative to income that they are vulnerable if mortgage rates were to spike,” says Dr. Cooper. “The Bank of Canada has expressed repeated concern about this constituency and the lenders are well aware and cautiously prudent.”
While a housing crash isn’t in the cards, there will be a slowdown in the white-hot condo building market.
“We will not experience a housing crash as some Cassandras have predicted for decades,” says Dr. Cooper. “We will, however, see a slowdown in the pace of house price appreciation, especially for the condo sector, where overbuilding is most evident.”
Interest rates – and in particular mortgage rates – can’t go any lower, and the growth of lending has peaked or is close to peaking, says one industry analyst.