If you’ve come to this blog post hoping for good news, we’re sorry for the slight disappointment. Based on our research, the outcomes don’t look too hopeful that mortgage interest rates will decrease in 2022. But hold on! Lowering interest rates might not be the best move for the Canadian economy.
Here’s what we know so far about forecasted rates:
According to Don Drummond an economist at Queen’s and former chief economist at TD Bank, who told CTV, that he believes variable interest rates will reflect the same forecast as that of The Bank of Canada. The former has predicted that although interest rates remain where they were held at 0.25% due to the pandemic, they forecast that this will increase in the second quarter of 2022.
Don Drummond predicts that the Bank of Canada’s short-term interest rate will increase by 0.75% by the end of 2022. It will increase even further, says Drummond, up to between 1.75% and 3% by the end of 2023. This is a valuable prediction that reflects the necessary increase to meet the bank’s loss during the pandemic years. “The variable rates will go up quite quickly, they could even go up in anticipation of the bank action,” said Drummond.
Lowering interest rates might not be in the best interest of Canadians and the Canadian economy, however. We often correlate lower mortgage rates with happier Canadians more able to afford their homes and a growing economy, but in reality, it can and will lead to no real change in the end.
Why negative interest rates are not working in Japan
The Bank of Japan (BOJ) introduced negative interest rates in 2016 as a money experimentation maneuver. In the six months following, there was no benefit seen within Japan’s economy. In fact, its bond market suffered from it. These lower interest rates did entourage borrowing and spending. It’s often a move made to promote citizens to take their money out of their savings accounts and spend it in an effort to boost the economy back from a recession or stock market bubble burst.
According to Investopedia, the reason why negative and highly low-interest rates don’t work to grow an economy is that “currency, as a commodity, does not generate an increased standard of living. Only more and better goods and services can do this, and it should be clear that circulating more bills is not the best way to make more or better things.”
Now, however, Japan has predicted an increase in mortgage rates well below their previous predictions of 2%. This is because the BOJ predicts that it will take longer than previously expected to make it back from the crisis-mode policies that were put in place during the pandemic. The BOJ forecasts an increase from 0% to 0.6% by the end of the first quarter of 2022. Supply disruptions globally due to the pandemic have also resulted in previously forecasted numbers remaining sluggish.
Due to Japan’s economy being similar to Canada’s and our own response to the pandemic within our borders, we can also expect a small increase in mortgage interest rates from the Bank of Canada. We can still rely on the Canadian government, however, to continue to provide struggling Canadian during COVID-19 with the necessary help they need. We find it highly unlikely, especially during the huge increase of cases during a fourth wave, that the government will allow policies such as an increase in interest rates to increase too quickly for Canadians to be able to catch up. The current housing market and crisis may lead to decisions being made to allow for more affordable housing to be built as well.
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