Rapid rate hikes would be 'devastating' for housing: Tal

CIBC Deputy Chief Economist Benjamin Tal is urging the Bank of Canada to take a slow and steady approach to raising interest rates in order to avoid wreaking havoc on mortgage debt-laden Canadian households.

In an interview Monday, Tal said that a deft touch is required to ensure the pace of interest rate increases does not push homeowners over the financial edge.

“The number one risk facing the housing market at this point is if the Bank of Canada waits, and waits, and waits, and then starts raising interest rates very quickly in a panic – let’s say in 2023; that would be very devastating for the housing market, if you have a rapid-speed increase in interest rates,” he said.

“So the hope is that they will move early, and slowly, and by doing so, you actually limit the damage in the mortgage market and the housing market. I think that the fact the Bank of Canada is telling us that they will be moving in the second half of 2022, which is much earlier than expected just a few months ago, that’s a very positive sign.”

The Bank of Canada has clearly signaled that it will not raise its benchmark policy rate until the economic recovery from the worst of the pandemic has taken hold, and indicated in its most recent policy decision that it sees that occurring sometime in the latter half of next year.

Rock-bottom interest rates aimed at cushioning the domestic economy from the ravages of the pandemic had the side effect of turbocharging Canadian housing markets. That heat hasn’t been confined to traditional population centres like Toronto and Vancouver – where average home prices exceed $1 million – as work-from-home measures put in place in the early days of the pandemic led many Canadians to look further afield for more space.

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