Canada

Canadian Household Borrowing Rates Fall To 2018 Lows

All hail the return of cheap money for Canada, it’s been weeks. Bank of Canada (BoC) data shows the effective interest rate paid by households dropped to a multi-year low as of March 6, 2020. The rate is now the lowest seen in over two years, having taken one of the biggest declines in at least seven.

Household Effective Borrowing Rate

The weekly effective borrowing rate is an index of the interest rate paid by households. The BoC puts it together by creating a weighted index. The index uses data from mortgage and consumer loans – at both posted and discounted rates. This gives us an idea of what households are paying to service debt. It’s a little better than just looking at consumer or mortgage rates, which provide limited insights. This is what people are actually paying, not what they’re advertised.

Rates Are Down Almost 11% From Last Year

The weekly effective borrowing rate for households has been dropping very fast. The effective rate fell to 3.54% on March 6, 2020, down 4.84% from a month before. The decline brings the effective rate of interest 11.94% lower than last year. This is an incredibly large decline, not seen for a very long time.

Canadian Household Borrowing Rate

The Bank of Canada’s weekly effective borrowing rate for Canadian households. The number is a weighted average of interest rates on mortgage and consumer credit products.

Source: Bank of Canada, Better Dwelling.

The decline makes this the biggest drop in years, and the lowest rate in months. The effective borrowing rate’s 12-month decline of 11.94% is the biggest for the week, in at least 7 years. This is also the lowest effective rate since January 2018. Over the next few weeks, this is likely to roll back into 2017 levels.

Canadian Household Borrowing Rate Change

The 12 month percent change for the effective interest rate households paid on March 6.

Source: Bank of Canada, Better Dwelling.

The cost of household borrowing isn’t at all-time lows, but is dropping very fast. This is intended to be a boost to consumers, which can help to propel the economy. However, the size and speed give a sense of the urgency the economy needs stimulus. Generally rates falling is a sign of economic weakness. Rates falling very quickly, is usually a sign of strongly anticipated weakness.

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10 Comments

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  • Marc 3 months ago

    Not good news for banks, unless they can make it up on volume. You would need prices to jump more than 2017 to translate into growth for lenders.

  • Mark 3 months ago

    The government wants people to take on more debt – it is inevitable because otherwise the 0.01% quarterly GDP growth will dip below zero and if two quarters register zero then it recession will have to be recorded. The shaky minority government could collaspe and a new election could be on the cards.

    These low rates are not for the benefit of the consumers, it is for the politicians to stay in power.

  • eduardo de la conche 3 months ago

    Must admit I don’t care what happens to the banks or investors.

    An ETF or a loan doesn’t replace a lost one.

    Money can be created, it’s a purely artificial construct.

    The world will have to start printing helicopter money soon, already happening in Australia and hong kong. USA and Canada think they’re different. They aren’t

  • Fraser 3 months ago

    Housing is not where you want to be right now…the markets are crumbling globally…silver and cash…be patient, lots to buy when it all bottoms…it has a ways to go…this will get much worse…cash is king…interest rates are going to go through the roof in the near future…bank runs…get ready for the housing crash, a big big crash coming…its going to get real ugly…its just beginning and it has nothing to to with the virus, thats just the excuse governments will use…breathe, relax, go for a walk…enjoy the freak-show, but do not be part of it…take advantage of it…lollllllllllll

    • alvi 3 months ago

      For the record, interest rates globally have collapsed and so have precious metals. The market is not worried about inflation, just look a the 30 -year yields bonds for various countires.

      I heard the same crap in 1980 when interest rates were 20% housed prices did not really go down( It was part of the remakable run from 1973 to 1989) the first serious correction was in 1989 it took over a 14 years to recoup the previous highs

      PS sales of single detached homes for first two weeks of March are very strong which does not imply that it will continue

  • Asterix1 3 months ago

    MSM is hilarious! It’s not just RE calculated misinformation.

    “Canadian household debt burden edges lower in the fourth quarter” (G&M)
    “Household debt-to-income rations lower in Q4: StatsCan” (BNN)

    That must be a big change! Let’s see the stats….
    2019 Q4= 176.3 %
    2019 Q3= 176.6 %

    Wow! That is a 0.17% percentage difference in 90 days. Give me a break, not newsworthy.

    Canadians are up their heads in debt and sinking! Recession will drown many (and the RE market)!

  • Brad 3 months ago

    You guys must not have been around in 2009… nothing to see here… government will bail out everything and low rates will continue. If a recession started to push real estate down you’re going to see exactly what Italy, UK, and Ireland just put in where mortgage payments are suspended. That way the market can stay at it’s current levels until the recession works its way through. For the record I’m a real estate bear, I hate it and it’s just a place to live for me… but I’m also an engineer that has worked in the financial system for quite some time at a bear market firm and know exactly how the BoC and government are going to act… again.

    • Neo 3 months ago

      My man, if we got to the point of where the government ha d to step in and halt mortgage payments because the recession was that bad then we would see future prices fall 30% at minimum and sales plummet. Who exactly would be looking at open houses with a deadly virus out there and a deep recession. Either way, the prices are coming down. They are WAY to artificial high already.

  • alvi 3 months ago

    I concur, policy makers the world over will throug every available tool at the immiment global slow down and will keep those policies in place well after coronal virus is contained

  • fred 3 months ago

    By cutting interest Government pumping up the price of house and shows growth

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