Economists split on whether longer term mortgages are positive

A panel of leading Canadian economists have opposing views on longer-term and shared equity mortgages.

A panel of leading Canadian economists have opposing views on longer-term and shared equity mortgages.

Following ideas mooted by BoC governor Stephen Poloz recently, the panel of seven economists convened by comparison site Finder.com is split on the issues.

TD Bank’s Brian DePratto said “more consumer choice is likely a good thing, but must be balanced against macroprudential considerations in light of still highly elevated household indebtedness.”

While SVP Research & Strategy at QuadReal Property Group, Carl Gomez said: “Anything that improves breadth in the availability of credit is good for the economy. For some borrowers, having certainty of a mortgage rate for a longer term could help them improve their ability to plan household finances.”

While they are split on changes to Canada’s mortgage landscape, they are unanimous on what the BoC will do at nest week’s interest rate decision.

All think that the current 1.75% rate should remain for now, but five of the seven suggest that the rate change after that could be upwards, not the cut that some have been predicting.

“Canadian data continues to be contradictory,” said Moshe Lander, Professor of Economics at Concordia University. “Stronger-than-expected job growth, a lower unemployment rate, stock market gains in 2019 are balanced against a slowing property market, continued trade tensions, political uncertainty and falling business confidence, leaving the Bank of Canada in a no-win situation. Best to wait and see.”

Alicia MacDonald, Principal Economist at The Conference Board of Canada, agreed that, right now, the data just doesn’t support a change of interest rates in either direction.

“Recent economic data suggest that growth will be stronger than the Bank was expecting in the first quarter, providing a reason to not cut rates,” she said. “At the same time, growth will remain below potential, providing no reason to lift rates. The Bank of Canada will therefore remain in a holding pattern for now and make any necessary adjustments to that stance based on incoming economic data.”

And Paos Capital’s Hubert Marleau added that a rate cut was not warranted as the slight improvement for the economy in April was not enough.

Asked about the next move for Canadian interest rates, most of the panel saw a hike whenever the BoC decides to act. This is a turnaround from the previous survey when most believed a cut would be next.

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