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Borrowers must adapt to 'new normal' of higher rates, says Macklem
6/16/2024 | Posted in Mortgage Interest Rates by Paul DeAdder | Back to Main Blog Page
Interest rates may slowly start to be easing around the world, but they won’t be returning to pandemic levels and borrowers will need to adjust accordingly.
That’s according to Bank of Canada governor Tiff Macklem, who made the remarks during a Montreal speech last week.
“Interest rates may be easing in many economies, but global interest rates are unlikely to return to pre-pandemic levels,” he said. “The new normal won’t be the old normal. And if we’re not going back, we’ll all need to adjust.”
He also acknowledged that there were policy errors made by the Bank of Canada during the pandemic.
“[Compared to the 1970s] our track record on inflation control combined with our forceful monetary response brought inflation back down at much lower economic cost. But public trust and central bank credibility have been dented by the post-pandemic inflation,” he noted.
“To keep the trust we have and to restore what trust we’ve lost, we need to continue delivering for our citizens. And we need to communicate clearly and broadly.”
Canadians’ household net worth rises, boosted by equity and housing markets
Despite the current economic challenges, Canadian households were wealthier in the first quarter, seeing their net worth rising by a total of $548.2 billion, or +3.3%, to $16.9 trillion.
That was due in large part to a 10.2% rise in equity markets and a 5.8% rise in the S&P/TSX Composite Index specifically, according to recent data from Statistics Canada.
Canadians also saw their wealth boosted by a collective $213-billion rise in residential real estate, marking the first quarterly decline after two consecutive declines. StatCan noted that household wealth isn’t distributed equally, with over 90% of net worth being held by homeowners.
The household savings rate was also up 6.9% in the quarter, the highest rate since the first quarter of 2022.
“Over the last four quarters, households added $113.7 billion in deposits compared with $161.3 billion in the four quarters prior to that,” StatCan said. “Households have responded to interest rate increases by adjusting their preferences towards fixed-term deposits that earn higher interest.”
Source: Canadian Mortgage Trends
