How Rising Interest Rates and a Recession Could Affect Homeowners in Canada

With new tariffs emposed by the US Government and a looming trade war, Canada’s economy is facing uncertainty. High interest rates and the possibility of a recession seem to be on the horizon. For homeowners, this combination can create financial challenges and impact the real estate market in significant ways. Whether you currently own a home or are considering buying, understanding how these economic factors interact can help you make informed decisions.

The Link Between Interest Rates and the Housing Market

Interest rates play a crucial role in the real estate market. When the Bank of Canada raises rates, borrowing becomes more expensive. This affects mortgage rates, which in turn influence home prices and buyer demand. Here’s how rising interest rates can impact homeowners:

• Higher Mortgage Payments: If you have a variable-rate mortgage, you’ve likely already seen your monthly payments increase over the past 2 years. Fixed-rate mortgage holders may also face significantly higher payments when their term is up for renewal.
• Decreased Home Affordability: Higher rates mean buyers qualify for smaller mortgages, reducing their purchasing power and leading to weaker demand in the housing market.
• Slower Home Price Growth (or Declines): As fewer buyers can afford to enter the market, home prices may stagnate or decline in some areas, particularly in overheated markets.

What Happens If Canada Enters a Recession?

A recession occurs when economic activity contracts for an extended period. It often leads to job losses, lower consumer spending, and declining business investment. If Canada enters a recession, homeowners could face additional pressures:

• Risk of Job Loss: A weaker economy could lead to layoffs, making it harder for some homeowners to keep up with mortgage payments.
• Declining Home Values: In past recessions, Canadian real estate markets have been resilient, but certain regions may see price corrections depending on local economic conditions.
• Tighter Lending Standards: Banks may become more cautious about approving new mortgages or refinancing applications, making it harder to access home equity.

How Homeowners Can Protect Themselves

If you’re a homeowner, there are steps you can take to prepare for rising rates and a potential recession:

1. Review Your Mortgage: If your mortgage is coming up for renewal, explore your options early. Locking in a fixed rate might provide stability if rates are to rise.
2. Build an Emergency Fund: Having a financial cushion can help cover unexpected expenses or temporary job loss.
3. Cut Unnecessary Expenses: Reducing discretionary spending now can help you stay ahead of financial challenges.
4. Consider Additional Income Sources: A side hustle or rental income can provide extra financial security during uncertain times.
5. Seek Professional Advice: A mortgage broker or financial advisor can help you navigate the changing economic landscape and find the best strategies for your situation.

While rising interest rates and a possible recession bring challenges, Canadian homeowners can take proactive steps to protect themselves. By staying informed, managing debt wisely, and preparing for potential financial shifts, you can navigate these uncertain times with confidence.

If you have questions about the current real estate market or how to make smart housing decisions in today’s economy, reach out to a trusted real estate professional for guidance. Don’t have an agent yet? Call us at 705-743-4444 — we always have an agent on duty!