First National Financial LP

Residential Mortgage Commentary - Inflation & interest rates increase anxiety

  • First National Financial LP

Inflation and rising interest rates are having a very real affect on Canadian spending habits and housing affordability according to a pair of new reports.

The latest survey by the Angus Reid Institute suggests that nearly 90% of Canadians are “tightening their belts” as a result of rising costs, an 8-point increase from August. 

Most (66%) are cutting back on discretionary spending but fully half are delaying major purchases like appliances, cars and homes.  More than a quarter (26%) now say they are taking the troubling step of deferring contributions to savings – which could include savings for a home – or to their retirement.  That is up from 19%, who said the same thing, just six weeks ago.

The survey also suggests nearly half of Canadians feel their financial situation is worse now than it was a year ago.

Against this tight-money backdrop one Canada’s big, chartered banks is reporting the worst housing affordability it has ever recorded.

Using the ratio of mortgage carrying costs to household income the bank’s, so-called, “aggregate affordability measure” hit 60%.  That beats the previous worst-ever reading of 57%, hit in 1990.

The bank expects the current housing market correction to push prices down 14% by the end of the year which, it says, will help affordability.  But it also expects on-going interest rate increases to delay the benefits of any price declines.