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How Inflation is Affecting Mortgages Today

by | Aug 31, 2021

inflation and mortgages


Inflation rate and Mortgages in Canada 

Since the beginning of 2021, inflation rates have been coming in at unprecedented levels. 

Last week, Canada’s inflation rate came in above expected and was at its highest rate in over a decade. The inflation rate came in at 3.7%, above the average of about 2%. 

It has been three consecutive months since the monthly inflation has been above the Bank of Canada’s neutral range of 1.75% to 2.75%. The neutral range is needed to support the economy at full employment/maximum output while controlling inflation. With this high inflation, we see it in the groceries we buy, gas prices, everyday goods, and so much more. 

The Bank of Canada has assured the country that elevated consumer prices will prove temporary and are primarily a result of the economic recovery taking place. 

Unfortunately, if these recent inflation numbers persist, homeowners are likely to expect potential rises again in real estate and a shifting rate-hike. 

Although real estate prices have started to even out after fast rises in the past ten months, we are anticipating a slight surge to continue, now till the end of the year. In 2022 a stabilization of the real estate market could and will likely happen. 

The inflation of the real estate market will end at some point and cannot live forever. Continued and rampant inflation harms an economy on a large scale and a personal scale. It has very devastating effects on those with fixed incomes and students struggling to pay off student debt. 

At some point, inflation will end through the course of events born through devaluation or aggressive action by monetary policy to reduce the currency supply. 

It is impossible to predict how inflation will go. Still, with governments in the next few years to likely focus on economic growth and less overall spending, alongside a private sector that recovers to a regular pattern of the expenditure, we will likely see a stabilization of the economy and inflation. 

How does this affect mortgages? Well, we could see dynamic shifts in rates in the next few years. 

Fortunately, the Bank of Canada has reiterated its commitment to hold the policy rate at its current record-low level until a 2% inflation rate is again maintained. This is expected until likely the second half of 2022. 

For variable-rate mortgage holders, it means potentially another year with no change to the prime rate, and therefore no change to their monthly mortgage payments. 

It is hard to tell for fixed-rate mortgages. Right now, they are at a low, but that could jump higher soon. 

Overall, it is essential to note that mortgage interest rates are at a historical low, and those with variable rate mortgages will likely continue with their same payment until 2022. 

However, as our economy continues to recover, we expect to see the inflation rates stabilize in Canada. This could have impacts on mortgage interest rates, which we will certainly be watching closely for our clients. inflation and mortgages

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