No, Most Canadians Are NOT Living In Fear of Higher Mortgage Rates

Canadians are buying into the narrative that higher mortgage rates will wreck half of households. A survey making the rounds saying exactly that doesn’t help, but the narrative existed before the survey. Fortunately, this isn’t true. How can we be sure? Well, let’s start with less than a third of households have a mortgage.

Less Than A Third of Canadians Have A Mortgage

Half of Canadians don’t have a mortgage, so more than half feeling the pinch from higher rates is unlikely. Equifax data shows 29.63% of Canadians in Q3 2021 have mortgages, and that share is the highest in a decade. If less than a third have mortgages, more than half of households can’t be impacted by higher rates.

A phantom limb is when someone reports they can feel pain in a missing limb. Maybe some homeowners have phantom mortgages? After paying it off, they still live in fear of mortgage rates rising? Either that or surveys are subject to routine sampling bias. 

Share of Canadian Households With Mortgage Debt

The percentage of households with outstanding mortgage debt across Canada.

Source: Equifax; CMHC; Better Dwelling.

For those that missed the class, sampling bias is a bias where a sample skews towards a demographic. The smaller the survey, the higher the probability of an imperfect sample. All surveys have a sampling bias, and it doesn’t mean the results are wrong or misleading. However, it needs to be balanced with the hard data you have to yield insights. The real takeaway is, a lot of mortgage holders self-report higher mortgage rates.

That brings up a second issue — self-reporting negative impact scenarios. People tend to view themselves in the scenario that suits them best emotionally. Have you ever heard someone brag about being rich because of their home’s soaring value? Then say the rich need to pay more in taxes? They see themselves as rich when it suits them, but not when it doesn’t.

Similarly, people might say they’re worried about higher rates if they don’t want them to rise. Then they might boast about how cheap the rates are, and act completely differently. That might be what’s happening here.

Canadian Home Buyers Are Increasing Exposure To Rates 

Traders often say it’s not what you know, it’s what you see. If you look, you’ll see homebuyers are increasing rate-risk exposure. The share of variable-rate uninsured mortgage debt reached 58% in October 2021. It’s about double the share seen a year before, which had been fairly consistent for the prior decade. Borrowers aren’t showing a fear of rising rates impacting their finances. They’re actively embracing the risk as a part of their financial planning.

The Vast Majority of Mortgages Issued Have Been Stress Tested

Canada’s bank regulator has prepared households for higher rates with the stress test. Banks in the country test a household’s ability to pay a mortgage 2 points higher. The country’s banks do the vast majority of mortgage originations. Some credit unions have voluntarily adopted similar tests. Non-bank lenders also report users with higher credit scores, that rarely max out leverage. We’ve prepared borrowers for higher rates for nearly half a decade. Much higher than we’re currently discussing.

Further, interest rates have only been down for two years. Less than a fifth of mortgage borrowers have been able to take advantage of falling rates. Even half of mortgage borrowers harmed by higher rates is a laughable narrative. Four-fifths of mortgage holders in 2019 needed a recession to manage their finances? Probably not.

Households might not want to pay higher mortgage rates. That’s likely true. They might tell people it will be the end of their finances if that were to happen. Most likely that’s not true. Very few households couldn’t balance higher rates, especially with the additional $150k+ in equity made over the past year.

Interest rates aren’t rising to punish the mortgage market. They’re rising to cool inflation. Rising mortgage rates impact less than a third of households, to a maximum of a third of their income. In contrast, inflation impacts 100% of income for 100% of the country.

Keeping low rates to protect a small share of homeowners from reduced profits is silly. Doing it while 100% of the population provides an indirect subsidy with higher inflation? That’s just bad math.



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  • Terrance 2 years ago

    Ever talk to a real estate agent? They’re convinced interest rates will never rise because 80% of the population has a mortgage. They don’t realize it’s 80% of people they interact with, which is subject to sampling bias as well, since they sell homes for a living.

  • Iman 2 years ago

    Correct. The stinker article says the surgery says half of households are convinced it would “negatively impact” their household finances.

    The average homeowner with a mortgage is paying $1,300 per month. The average rent is rising 5-10%. It’s very clear what the bigger problem will be, but the people who will be impacted largely already vote for this party, so they will be thrown to the wolves.

  • D 2 years ago

    The Canadian central bank is anti utilitarian, the majority of Canadians will benefit from higher interest rates as the majority of Canadians today are SUFFERING from the insanely high inflation rate. Look at shadow stats for american inflation. Based on 1980’s measurement of inflation the US has on average had around 8% annual inflation since 1980. Just think how much it is for Canada. It’s no wonder an average wage of $65k in Canada can only afford you basic needs. In America, the median wage in 1980 was $10k, today it should be $250,000 adjusted for inflation but its only $45,000. $1 in 1980 is the equivalent of $25 today. How much is it for Canada? Probably higher.

    • Grant Shewchuk 2 years ago

      You fail to recognize, as do most economists, that raising interest rates, not only does not stem inflation, it actually feeds further inflation, primarily because “interest” is a cost factor in the production of every good and every service in our economy.

      • Jin 2 years ago

        This is untrue. An increase in interest lowers consumption, driving costs down.

        The cost of housing is the income you can afford to pay over the time plus the discount of interest. If you can only afford a $4k/month payment, the only difference is who gets the split. The seller gets more when interest rates are low, and the bank gets more when interest rates are high.

        Long term buyers don’t care. TTheir house fluctuates. Nothing new. Short term investors who need the price to rise quickly buy because rates are increasing the amount people can spend. When rates rise, investors disappear. When investors disappear, so does their contribution to inflation.

  • J_Morrow 2 years ago

    Regardless of disposition, economic and monetary policy should be independent of the housing sector. In free market capitalism, which we don’t have, housing would take care of itself. It is the terrible government interference that has created the problem (and almost every other seemingly unsolvable problem).

    I think rising rates will be a problem for a significant (not to be misread as large) sector of the population – the millennials. You know, the supposed leaders of tomorrow. The social wreckage that a collapse would unleash will be felt for generations.

    But who cares! I can be wrong or right, as can the article writer. What we know is that we can either kick the raising of rates down the road even further, or we can pay the piper soonish. The debt burden, and the epicness of its eventual collapse, will simply continue to grow in the meanwhile – it doesn’t care either. The longer we wait though, the less likely that the pin gets pulled on anything remotely resembling ‘our terms’.

    Reminder to always keep stocked up on popcorn.

  • david 2 years ago

    a lot of people are waiting for higher rates.

    Only over leveraged investors and the government want to keep rates low.

  • Arthur 2 years ago

    Mortgagors with average mortgage payments are not where the payment risks will be hardening. Buyers over the last five years who stretched every possible means to help drive up this market, including those who lied about the down payment not being borrowed are where rate increases can make a life changing difference. If we knew how many of theses borrowers are rightly worried, then we could answer some market predictions made by the real estate industry.
    A survey of agents on how many of their customers (or is it clients?) appeared to be finding ways around stress tests to close their deal. I have heard that banks are frequently turning down applicants who don’t pass but the purchase goes through somehow. It can take a few years but higher rates can drastically change Canada’s world leading bubble ( sorry exuberance)

  • Rory 2 years ago

    This is a very interesting article and would love to have some more real hard stats about Canada’s housing market both macro and locally.

  • Tim Toon 2 years ago

    So 30% have mortgages, what you fail to mention is how stretched are they financially?

    The latest numbers are Canadians on average spend 1.77 for every dollar earned and with inflation around 15-20% not the 5 or 6% the government wants you to buy into, all it will take is a few defaults to get the ball rolling.

    Nice try.

    • Mortgage Jesus 2 years ago

      No, they have 1.77 dollars in credit market debt for every dollar earned.

      The average mortgage is $1,300 across Canada. The average household income is $100,000. They can easily handle the payments. They have a lot of leverage, but the cost diminishses daily because Canada hasn’t been a country that can have an overnight rate higher than inflation for almost a decade. At this rate, it might never be.

  • Mike 2 years ago

    Most canadians living pay check to check are worried about the rise of all prices. Where the money made by regulating items such as marijuana ect.

  • neil 2 years ago

    Two things:
    According to this:
    About 40% of Canadians have a mortgage. Granted that’s from 2019 but the percentage has probably gone up since them. If you narrow down into the 25-55 age group the percentage is likely to be significantly higher. The Equifax data may be based on adults over 18 which skews the number. Not many people under 25 (or even 30) own a home, and most people try to pay off their mortgage before retiring so the over-60s would also skew the number.

    Secondly, there’s people who have debt against a property but it’s not registered as a mortgage. Some people in that group would be concerned with mortgage rates going up even though they don’t technically have a mortgage (mortgage rates going up means other rates are also going up).

    Interesting how statistics can be played with! What’s the old saying “Lies, damn lies, and statistics”?

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