Rate Rise As Housing Hammer Bmo Senior Economist

A senior economist at BMO Capital Markets says the Bank of Canada’s recent move to raise its key interest rate is setting the housing market up for an even deeper correction next year.
Robert Kavcic says Gov. Tiff Macklem’s surprise one percentage point rate hike last week was like taking a hammer to the housing market.
In a note to investors, Kavcic says the increase that prompted commercial banks to raise their prime rates has made it harder to qualify for a mortgage under Canada’s stress-test rules.
The test sets the qualifying rate for unsecured mortgages at either two percentage points above the contract rate or 5.25 percent, whichever is greater.
Cavcic says that before the move, floating-rate borrowers still qualified at 5.25 percent, but that has now shifted to around 6 percent, which he sees as “a huge pill for the market to swallow ».
Fixed-rate borrowers qualify at around 7%, which he says will also affect their purchasing power.
This report by The Canadian Press was first published on July 18, 2022.