The Bank of Canada highlighted early signs of financial stress among Canadian households as one of the key risks in the financial system. The unprecedented increase in interest rates has raised the costs for households, a vulnerability if a recession were to occur.
“Elevated interest rates and declining house prices have reduced the financial flexibility of many households,” reads the bank’s Financial System Review released on Thursday.
Due to the increased expense of servicing mortgages, homebuyers have relied more on credit card debt, which has exceeded pre-pandemic levels.
“We’re going through a transition to higher interest rates, higher interest rates than what people got used to and along that transition there are some risks,” said Bank of Canada Governor Tiff Macklem during a press conference in Ottawa on Thursday. “It’s important that we are vigilant through this transition.”
The median debt service ratio of homebuyers, which looks at the gross income of households and the portion of it going towards paying off debt on their mortgages, has increased to 19 per cent in 2022. Close to 30 per cent of new mortgages have households paying a median of 25 per cent or more of their income to service their payments.
One-third of mortgages have seen an increase in payments since February of last year and all mortgages will have increased payments by 2025-26, when renewals occur.
The increase in costs will be highest among those households with fixed-rate mortgages, which will see their payments increase by 20 to 25 per cent in 2025 or 2026. Borrowers with fixed payments will see an increase of 40 per cent, that same year. Variable rate holders have already seen their payments go up by 50 per cent this past year.
“We highlighted in the report we are more concerned about the ability of households through this transition to manage their debts,” said Macklem.
The bank says households that bought into the housing market during its peak in pricing during the COVID-19 pandemic will face the most hardship moving forward.
To help alleviate the cost of those monthly payments, the share of new mortgages with an amortization longer than 25 years has increased from 34 per cent in 2019 to 46 per cent in 2022.
The bank does not see this as permanent, but as a short-term measure that homeowners are adopting to fight rising interest rates.
“Amortizations are a buffer that households can use if they find their payments go up and squeeze their budgets more than they can deal with,” said Bank of Canada Senior Deputy Governor Carolyn Rogers.
Canada has the highest debt in the G7, with household debt representing 187 per cent of net disposable income in 2022, according to figures released by the Organization for Economic Cooperation and Development.
“I know that the high interest rates that are getting us there are causing real challenges to Canadians,” said Deputy Prime Minister Chrystia Freeland during a press conference in Brampton, Ont. “And our government is providing targeted, focused support to the most vulnerable, the grocery rebate that’s going to provide nearly $500 for a family of four, that’s going to arrive on July 5.”
Freeland said the federal government cannot compensate every single Canadian for the additional strain posed by inflation and higher interest rates.
The central bank did not rule out increasing its policy rate last month. Despite expectations that inflation would continue to decrease, Statistics Canada reported inflation rose 4.4 per cent last month, up from a 4.3 per cent increase in March.
“Inflation is coming down, but we have some distance to travel to get inflation back to the 2 per cent target,” said Macklem.
Jay Zhao-Murray, a foreign exchange analyst with Monex Canada, thinks the central bank will have to raise rates again.
“The Bank of Canada will likely be forced into hiking rates on June 7 because the upside risks to its inflation projection are materializing and the downside risks have begun to fade,” he said.
Other top risks in the financial sector include the recent banking stresses in the United States, with the defaults of Silicon Valley Bank, Signature Bank, Credit Suisse and most recently, First Republic Bank this spring. The bank sees these defaults as an ongoing adjustment in the regional banking sector.
“The banking stress that we saw recently in the U.S. was an example of a small number of institutions that were not well positioned to deal with the sharp increase in interest rates,” said Rogers. “We saw some of the vulnerabilities play out and they created some very extreme stress for a smaller amount of institutions that had a ripple through the banking sector.”
The tightening of liquidity in the banking sector also remains a top concern, particularly as bank funding costs have increased. This remains a key risk if a recession were to occur.
EDMONTON – RCMP say a second suspect has been arrested in the killing of an Alberta county worker.
Mounties say 28-year-old Elijah Strawberry was taken into custody Friday at a house on O’Chiese First Nation.
Colin Hough, a worker with Rocky View County, was shot and killed while on the job on a rural road east of Calgary on Aug. 6.
Another man who worked for Fortis Alberta was shot and wounded, and RCMP said the suspects fled in a Rocky View County work truck.
Police later arrested Arthur Wayne Penner, 35, and charged him with first-degree murder and attempted murder, and a warrant was issued for Strawberry’s arrest.
RCMP also said there was a $10,000 reward for information leading to the arrest of Strawberry, describing him as armed and dangerous.
Chief Supt. Roberta McKale, told a news conference in Edmonton that officers had received tips and information over the last few weeks.
“I don’t know of many members that when were stopped, fuelling up our vehicles, we weren’t keeping an eye out, looking for him,” she said.
But officers had been investigating other cases when they found Strawberry.
“Our investigators were in O’Chiese First Nation at a residence on another matter and the major crimes unit was there working another file and ended up locating him hiding in the residence,” McKale said.
While an investigation is still underway, RCMP say they’re confident both suspects in the case are in police custody.
This report by The Canadian Press was first published Sept. 13, 2024.
RICHMOND, B.C. – The Integrated Homicide Investigation Team says the 26-year-old son of a man found dead on British Columbia’s Sunshine Coast has been charged with his murder.
Police say 58-year-old Henry Doyle was found badly injured on a forest service road in Egmont last September and died of his injuries.
The homicide team took over when the BC Coroners Service said the man’s death was suspicious.
It says in a statement that the BC Prosecution Service has approved one count of first-degree murder against the man’s son, Jackson Doyle.
Police say the accused will remain in custody until at least his next court appearance.
The homicide team says investigators remained committed to solving the case with the help of the community of Egmont, the RCMP on the Sunshine Coast and in Richmond, and the Vancouver Police Department.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, have broken off without an agreement following 15 hours of talks.
Joe McCann, president of Amalgamated Transit Union Local 1724, says they stayed at the bargaining table with help from a mediator until 2 a.m. Friday and made “some progress.”
However, he says the union negotiators didn’t get an offer that they could recommend to the membership.
McCann says that in some ways they are close to an agreement, but in other areas they are “miles apart.”
About 600 employees of the door-to-door transit service for people who can’t navigate the conventional transit system have been on strike since last week, pausing service for all but essential medical trips.
McCann asks HandyDART users to be “patient,” since they are trying to get not only a fair contract for workers but also a better service for customers.
He says it’s unclear when the talks will resume, but he hopes next week at the latest.
The employer, Transdev, didn’t reply to an interview request before publication.
This report by The Canadian Press was first published Sept. 13, 2024.
