a risk associated with homebuyers getting into the market at current rates.
“We are still dealing with emergency interest rates. Let’s remember that these are not normal interest rates and eventually they will rise,” Benjamin Tal, deputy chief economist at CIBC World Markets, told BNN Bloomberg. “If you’re in the market now and you’re thinking about buying this huge house with a huge mortgage, let’s think about it for a second. Can you afford this mortgage if rates will be 10, 150, 200 basis points higher? If not, buy a smaller house or rent.”
He further noted that it is necessary to think about higher interest rates and what it means, with the consumer being the number one victim under these circumstances.
“The question is to what extent higher interest rates will really kill the consumer,” he added. “The bank rate is at 25 basis points now. It might go to 1.5, maybe two per cent, if the market is right. That’s a significant increase over time.”
According to the CIBC economist, possible rate hikes would have bigger implications on new homebuyers than those with an existing mortgage. Consumers who will need to refinance their mortgage in the next few years, might also be less impacted since there was a higher interest rate environment in Canada bank in 2017 and 2018.
