SYNOPSIS

Bank of Canada Senior Deputy Governor Carolyn Rogers has stated that Canada’s housing affordability crisis won’t be solved by changing the country’s mortgages. With 60% of Canadian mortgages up for renewal in the next two years, many homeowners face higher payments even after rate cuts. Rogers emphasized the need for a better balance between housing supply and demand to improve affordability, cautioning against ‘tinkering’ with the mortgage market to address this complex issue.

Canada’s housing affordability crisis cannot be resolved simple by changing the country’s unique mortgage structure, according to Bank of Canada Senior Deputy Carolyn Rogers. Speaking in Toronto, Rogers emphasized that Canada’s mortgage model has supported financial stability and access to affordable credit, keeping mortgage default rates among the lowest in advanced economies. Instead of restructuring the mortgage market, Rogers advocated for a better balance between housing supply and demand, warning that this will take time to achieve.

Unlike the United States, where fixed-rate mortgages span 30 years, Canadian mortgages are typically either variable rate of fixed rate with adjustments every four to five years. This structure leaves Canadian homeowners more exposed to interest rate fluctuations. Over the next two years, about 60% of all outstanding Canadian mortgages-over four million-are up for renewal, with many homeowners expected to face significantly higher payments, despite recent rate cuts.

To stimulate growth, the Bank of Canada has cut its key interest rate four times, bringing it down to 3.75% as inflation returned to the 1%-3% target rage. However, due to the structure of Canadian mortgages, these cuts may have limited impact. Fixed-rate mortgages in Canada are closely tied to long-term bond yields, which have not fallen substantially, leaving renewal rates much higher than in previous years.

Rogers cautioned that higher mortgage payments could lead households to reduce spending more than expected, potentially impacting overall economic growth. Additionally, she warned of potential risks to market liquidity and financial stability should mortgage defaults rise.

while some policymakers and economists have proposed extending mortgage term to 10 years or more to reduce payment volatility, Rogers argued against “tinkering too much with the mortgage market” to address affordability challenges. She pointed out that the current structure has played a role in preventing excessive leverage, an essential factor in maintaining stability.

Ultimately, Rogers underscored that improving housing affordability will require more comprehensive solutions that address underlying supply and demand imbalances, With demand for housing continuing to outpace supply, the path to more affordable housing in Canada remains complex and long-term, beyond adjustments to mortgage terms.

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