Mortgage rates won’t go back to what they used to be anytime soon: Economist

Canadians will have to adjust their expectation of what a normal mortgage rate level looks like going forward, one economist says.

“This is an adjustment we’re going to have to make as homebuyers and investors. A lot of people were lulled into the belief that what we saw over the last decade was normal, I would argue that the interest rate levels we saw post-financial crisis through the early days of the pandemic were the exception, not the norm,” said Kavcic.

The Bank of Canada resumed its rate hiking cycle earlier this month, boosting the main lending rate in Canada to 4.75 per cent. Kavcic acknowledges this is a high level, but stands firm in his belief that rates will stay above two per cent.

“Five to six per cent lending rates are very restrictive and high, but don’t sit on the edge of your seat and hope we’re going to go back to two per cent or below mortgage rates in the next couple of years,” Kavcic said. “Maybe neutral mortgage rates now are even 100 basis points higher than what we were used to last cycle.”