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Surprising to some but not all, the Bank of Canada held rates at 4.5% on March 8th. This was a sigh of relief for consumers with variable rate mortgages, lines of credit, and credit cards - as well as many others across the Canadian economy and financial community. This is the first pause after 8 consecutive rate hikes. However, the pause may be temporary since the BoC has noted that future rate decisions will be dependent upon incoming economic data.
Bad news for the economy may actually be good news for the Bank of Canada and Canadians hoping for some relief. Canada's economy is showing signs of slowing down and we may have passed the year-over-year peak inflation numbers. As a result, BoC will have some lee-way with future rate decisions as they hope to allow markets to settle and current rate hikes to work their way through the economy - hopefully with a soft landing, rather than an overcorrection.
Where are the Distressed Sellers? According to CIBC, 20% of the bank's residential loan portfolio, worth $52 billion, is in a position where borrowers cannot afford the interest portion of their loans. The bank has allowed these borrowers to extend their loan term, known as the amortization period, and add the unpaid interest to their principal. TD bank reports that 25.2% of their residential mortgages now have an amortization period of 35 years or more, compared to almost none a year ago. The Canadian banks are protecting their own loan portfolios by not allowing a wave of distressed sellers due to the inability to pay the interest.
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