Even 50-bps Bank of Canada rate cut could wash over financially stressed consumers, survey suggests

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Canadians are so financially stressed out that the expected relief from a jumbo-sized rate cut by the Bank of Canada could just wash over them, an ongoing survey of people’s outlook suggests.

The fallout from pandemic-era inflation and sticky higher prices remain “significant pain points for consumers,” John Wright, executive vice-president of Maru Public Opinion, said in a release highlighting households’ outlook for finances and the economy since 2020.

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“Even a further 50-basis-point cut in interest rates may not prompt action from many Canadians, who might decide to wait for more favourable conditions, as the burden of down payments and mortgages continues to feel out of reach,” he said.

Canada’s housing market suffered from affordability issues before COVID-19, but those issues have only worsened.

Home prices are 30 per cent higher than in April 2020, Wright said, adding that monthly mortgage payments on a five-year fixed mortgage are 40 per cent higher than in January 2020, citing data from the Canadian Real Estate Association.

In the previous Maru Household Outlook Index survey, it looked like more people were ready to take the plunge into the housing market, possibly buoyed by the Bank of Canada’s telegraphed intention to continue cutting interest rates.

But despite the rate cuts, Wright said people are looking to downsize from their current homes because they can no longer afford their mortgages and are “hoping the rate cut would make their properties more appealing to potential buyers.”

With more interest rate cuts on the way, he thinks homebuyers are pushing their home-buying intentions until after the Bank of Canada’s meetings on Oct. 23 and Dec. 11. They have also possibly pushed back their buying intentions in order to benefit from new rules on longer amortization periods and a higher price cap on insured mortgages, which are set to take effect in December.

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But for many Canadians, it’s not just about housing affordability.

“This inflationary pressure extends beyond housing, affecting sectors such as cars, groceries and manufactured goods, indicating a structural economic issue unlikely to be resolved by simply lowering interest rates,” Wright said.

Maru’s survey said 50 per cent of people plan to save for retirement over the next two months, down from 56 per cent in the previous survey; 42 per cent believe their local economy will improve, compared with 45 per cent previously; 61 per cent said they will have more than two months of savings on hand if an emergency cost arises, down from 64 per cent; and 10 per cent said they intended to buy a house, compared to 13 per cent.

Another Maru poll of residents of Vancouver, Calgary, Edmonton and Toronto uncovered further evidence of severe affordability stress.

“Among 20 pressing issues, the most significant include the cost of living, affordable rent and home ownership, and health care,” Wright said.

Seven in 10 people indicated they feel their “cities are unaffordable,” while 84 per cent agreed it was “too costly to live and work in these urban areas.”

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For now, Canadians’ outlook on the economy remains firmly stuck in negative territory, with 63 per cent indicating they think it is moving in the wrong direction, pushing the Maru Household Outlook Index down to 89 from a previous reading of 90.

The base number for the index is 100: a result above 100 indicates optimism while below 100 indicates pessimism. Maru compiles its household index each month by asking a panel of about 1,500 people a series of questions about the economy’s prospects over the next 60 days.

Maru conducted its latest survey Sept. 27-30, 2024.

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