Rising rates will likely widen wealth inequality: TD chief economist

Rising interest rates are likely going to widen wealth inequality in Canada, as housing affordability hits its worst level in decades, according to Beata Caranci, senior vice-president and chief economist at TD Bank.

In a report released Wednesday, Caranci said there are several factors that affect wealth inequality in Canada but “housing is the single, most important element of the household balance sheet.”

She added that it’s getting even more challenging for low-income Canadians to get into the housing market, as interest rates continue to rise.

“The recent spike in interest rates has lowered home prices and the down payment thresholds, but it has ultimately worsened affordability with higher debt service costs,” Caranci said.

“Each percentage point increase in interest rates from current levels will need to be accompanied by a roughly 10 per cent decline in (home) prices to keep mortgage payments the same.”

The Bank of Canada has hiked interest rates four times in a row now, with the benchmark overnight rate currently sitting at 3.25 per cent.

Officials expect they will continue raising rates in the months ahead.

“Given the outlook for inflation, governing council still judges that the policy interest rate will need to rise further,” officials said in the statement.

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