First National Financial LP

Residential Market Commentary - Fighting fear about fighting inflation

  • First National Financial LP

The outsized interest rate hike by the American central bank, last week, is sending ripples through Canada’s housing market.

The U.S. Federal Reserve took the very rare step of boosting its trend-setting rate by 75 basis points at its June 15th setting.  Federal Reserve Chair Jerome Powell also set the stage for more, bigger-than-normal, increases in the future. 

The U.S. increase follows a 50 basis point rate increase by the Bank of Canada on June 2nd.  Both central banks are engaged in a serious fight to bring inflation back to a 2% target.  Right now, inflation is nearly 7% in Canada, and almost 9% in the U.S.  This month’s hike by the Fed is fuelling speculation the BoC might also go for a three-quarter of-a-percentage point increase sometime this year.

None of this will do anything to relieve anxieties expressed by Canadian homeowners in a recent survey by Manulife.

The poll was conducted in April before this month’s rate hikes.  It suggests more than 20% of Canadians expect rising rates to have a negative effect on their mortgage, debt, and financial situation.  Fewer than half of those surveyed “feel prepared for rising rates.”

However, these fears may be the result of a lack of knowledge rather than any real risk.  The survey also reveals that nearly a third of respondents admit that they do not understand how inflation or interest rates work.  Many do not have a household budget or a written financial plan.

That suggests there are plenty of opportunities for brokers to provide sound information, so their clients can get on the path to secure home ownership and the financial benefits that can come with it.