The rapid rise of interest rates have left the Bank of Canada more worried about Canadians’ household debt and cracks forming in the global financial system.
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Bank of Canada sees signs Canadians are having trouble keeping up with their debt
The strain of rising mortgage interest costs on indebted households and the aftershocks of the U.S. banking crisis have emerged as two key risks highlighted in the central bank’s latest Financial System Review.
“More households are expected to face financial pressure in the coming years as their mortgages are renewed,” the May 18 review read. “The decline in house prices has also reduced homeowner equity, and some signs of financial stress — particularly among recent homebuyers — are beginning to appear.”
In a press conference following the report’s release, senior deputy governor Carolyn Rogers said about one-third of households have already seen their mortgage payments increase since February 2022.
Mortgage costs to keep rising
It warned that many more borrowers will see a significant bump-up in payments as they renew their mortgages, with costs rising by a median of 20 per cent between 2023 and 2026, assuming rates evolve along with current market expectations.
Variable-rate borrowers with fixed payments are expected to see the biggest spike with payments having to increase by up to 40 per cent to keep up with their original amortization schedule, assuming they renew in 2025 or 2026. Variable-rate mortgages with variable payments have already seen a near-50 per cent increase in payments, most of which took place last year.
Fixed-rate borrowers could see the biggest spike in their mortgage payments in 2025-26 with a 20 to 25 per cent hike, according to the central bank’s simulation.
The more stretched households become, the more vulnerable they are to defaulting on their loans, especially if they’re hit with a large negative shock like a global recession that could leave them unemployed and with depressed home prices. Lenders could get stuck with sizeable credit losses, adding further strain to the financial system.
So far, households have been able to manage the higher costs, though the central bank said there are pockets of strain appearing. There have been more households that are behind on payments for at least 60 days in any credit category.
Borrowers have also been stretching themselves to get into the housing market with lengthier amortization periods. The central bank noted the share of new mortgages with debt servicing periods longer than 25 years grew to 46 per cent from 41 per cent across 2022. This is also considerably higher than the 34 per cent share in 2019.
Higher mortgage interest costs were a big driver in the uptick in the consumer price index in April and they could complicate the Bank of Canada’s mission to tame inflation as they continue to rise in the months ahead.
Banking turmoil
A rising rate environment across the globe has also strained the banking system. The collapse of Silicon Valley Bank in March was followed by three other regional banks in the United States, and the emergency takeover of Swiss banking giant Credit Suisse.
“These events have exposed vulnerabilities — notably, business models that rely excessively on an environment of low interest rates and low volatility — and serve as a reminder that risks can emerge and spread quickly,” the report said.
As the financial sector adjusts to higher rates, central banks, market participants and regulators alike will need to be more vigilant, it stressed.
So far, the spillover into Canada’s banking sector has been subdued, partly because U.S. and Swiss regulators moved quickly to limit contagion, but also because of the sound risk management of Canadian banks and smaller exposure to the U.S. market, the bank said.
“Moreover, Canada rebuilt its domestic stability buffer after the onset of the COVID-19 pandemic,” the report read. “This means Canadian banks are holding additional capital buffers in case of a severe economic downturn.”
However, the central bank warned that if a severe recession hits, Canadian bank balance sheets would struggle with credit crunches and funding pressures.
One credit risk the central bank’s report briefly flagged was banks with a higher exposure to commercial real estate, which has struggled after the rising popularity of working from home cut demand for office space.
“As a result, market valuations of firms in the office space subsector have decreased,” the report read. “If some of these commercial real estate firms were to default on their loans, lenders could face credit losses.”
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TORONTO – After being drafted in the third round (61st overall) of the 2023 MLS SuperDraft, forward Charlie Sharp decided to put his dream of playing professional football on hold.
He spent a couple of weeks training with Toronto FC that summer and then returned for a fifth year at Western Michigan University.
“It was a really tough decision for me,” Sharp recalled. “Because I knew that going back to school, nothing was guaranteed. I could get injured or not perform well, but it seemed to really work out for me.”
Sharp scored 19 goals and added eight assists as a senior, leading the Broncos to a 17-2-3 record and a third-round appearance in the NCAA tournament where they eventually lost to national runner-up Notre Dame on penalty kicks. Sharp, who scored or assisted in nine of his last 10 matches, ranked first in the NCAA with 0.95 goals per game and 2.30 points per game and was tied for second with seven game-winning goals.
The 23-year-old Sharp, whose rights were retained by Toronto, spent time with the TFC first team in this year’s pre-season and signed with Toronto FC II in February. On Tuesday, he joined TFC 2 teammate Nate Edwards, a wingback from Brampton, Ont., in signing a first-team contract.
“We are happy to officially elevate Charlie at this time,” Toronto GM Jason Hernandez said in a statement Tuesday. “His strong mentality and mature playing style will be a welcomed addition to our young player group in the first team.”
Both players signed contracts that run through 2025 with club options for 2026 and 2027.
The deals were completed in advance of Friday’s MLS roster freeze but took their time working their way through the league office.
“A bit of unorthodox path that I chose,” said Sharp. “But I think you’re seeing it more now with players that get drafted.”
“I’m super-happy,” he added. “I think I made the right decision.”
As a senior, Sharp was one of three finalists for the 2023 MAC Hermann Trophy, which honours the top NCAA soccer player. The award eventually went to Clemson senior forward Ousmane Sylla.
The six-foot-five 185-pounder from Brighton, Mich., finished his collegiate career with 42 goals 22 assists, and 106 points in 89 games. He ranks first in career goals and games and tied for fourth in assists for Western Michigan.
In returning to Kalamazoo for a fifth year, Sharp also succeeded off the pitch by completing his degree in computer information systems.
Despite some niggling injuries, Sharp has five goals and two assists in 16 appearances with TFC 2 this season. He made his first-team debut off the bench May 15 against Nashville.
“I had a lot of friends and family watching,” he said.
“It’s been a journey,” Sharp added. “I’ve been thankful for every step of the way.,”
The 21-year-old Edwards has one goal and two assists in 23 games with TFC’s MLS Next Pro team.
“He has been a top performer with TFC II this season and we look forward to his continued growth within our environment,” said Hernandez
Edwards, who also joined TFC 2 in February, made his first-team debut May 21 in Canadian Championship play against Ligue1 Quebec champion CS Saint-Laurent.
The five-foot-eight 167-pounder split his college career between Syracuse University and Purdue University Fort Wayne. As a senior in 2023, he had one goal and four assists for Syracuse and was named to the 2023 All-Atlantic Coast Conference (ACC) Academic Team and College Sport Communicators (CSC) Academic All-District Team.
At Purdue University Fort Wayne, he had two goals and an assist in 40 appearances across three seasons (2020-2022) with the Mastodons.
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This report by The Canadian Press was first published Sept. 17, 2024.
The Canadian Press. All rights reserved.
CALGARY – A Calgary man who pleaded guilty to sharing Islamic State recruitment videos and propaganda on TikTok will spend the next six years behind bars.
Zakarya Rida Hussein was sentenced during a court appearance on Friday after he pleaded guilty to one of four terrorism-related charges.
Hussein admitted that he owned social media accounts that posted ISIS recruitment videos and propaganda.
He also admitted to sharing a bomb-making video online.
The man was arrested in June 2023 after a joint investigation led by the RCMP and the Calgary Police Service.
Hussein will need to submit DNA results and will be under lifetime ban from owning firearms after he’s released.
This report by The Canadian Press was first published Sept. 17, 2024.
The Canadian Press. All rights reserved.
MONTREAL – The Bloc Québécois leader says he’s in no hurry to trigger a federal election and will instead stick with his plan to extract gains from the minority Liberal government.
Yves-François Blanchet made the comments to reporters today after his party’s stunning byelection victory in the former Liberal stronghold of LaSalle—Émard—Verdun, in Montreal’s southwest.
Blanchet says the NDP’s decision to end its agreement with the Liberals that had propped up the minority government gave his party the momentum it needed to win the riding by just 248 votes.
With the victory, which was announced early this morning, the Bloc has 33 seats that when coupled with the Liberals’ 154 seats create a majority in Parliament.
Blanchet says he will evaluate what the Bloc can gain from the Liberals in exchange for his party’s support, adding that among its demands is more money for seniors.
Bloc candidate Louis-Philippe Sauvé won the LaSalle—Émard—Verdun riding with 28 per cent of the vote, holding off the Liberals and NDP in a tight race.
Blanchet says the victory — which gives the Bloc its second seat on the Island of Montreal — demonstrates that voters have options outside of the Liberals.
This report by The Canadian Press was first published Sept. 17, 2024.
The Canadian Press. All rights reserved.
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