It would appear that higher interest rates are working and maybe that stress test the housing and financial industries complained about was not such a bad idea after all.
A new assessment of the situation borrowers find themselves in comes from the economists at CIBC Capital Markets who say the demand for new credit is almost zero – a level we haven’t seen since the recession of the 1980s.
It turns out higher mortgage costs – which can also translate into higher rates for renters – is causing people to cut back their spending in other areas, exactly what was supposed to happen to fight inflation.
And as real estate values continue to rise, the net worth of Canadians is growing too but, even with that added wealth on the balance sheet, fewer of us are willing to take on more debt.
About half the higher rate mortgage renewals have now been completed and delinquencies are at pre-COVID levels. The bank says these developments suggest the financial system will be able to manage but signal that discretionary or consumer spending is shrinking.
