REGINA – As fiery competition among Canada’s banks drives fixed interest rates for mortgages down, growing household debt is being called a concern.
“We’re getting towards the point where it starts to become a real concern,” said Jason Childs, an economist at the University of Regina.
Low interest rates mean banks are making it more affordable to buy a house, which in turn is driving up household debt.
“We’re getting towards those levels that the Americans were in prior to 2007,” said Childs. “Canadians are now carrying more debt to their disposal income than the Americans are.”
The rationale is, low interest rates will encourage consumers to spend money in order to drive forward the economy: “Households are going to get to the point where they’re going to go stop. ‘We can’t do this anymore. We can’t keep adding to our debt’.”
Last week, the Bank of Montreal lowered its five-year fixed mortgage rate to a historic 2.79 per cent, with TD bank quickly following suit.
Alternative lenders have been pricing at low levels for several years. For example, Focus Mortgage Solutions in Regina recently posted a five-year fixed rate at 2.59 per cent.
“To me that’s as low as I’ve ever seen or I’ve ever offered,” said Jason Dornstauder, owner of Focus Mortgage Solutions. “I may have offered something somewhat close to this in the past, but that’s just mind blowing to me.”
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However, the concern is that low interest rates make it too easy for people to borrow money.
“Interest rates are insane right now. I’m constantly baffled,” said Dornstauder. “It’s very plastic. It’s almost like going to Las Vegas. Everything is real. It’s there, but we know it’s not. It’s completely an illusion.”
The low rates come as buyers head into the spring real estate season, where supply of residential properties for sale continue to sit at a twenty year high in Regina.
“That’s when demand typically peaks as it likely has,” said Gord Archibald, executive officer with the Association of Regina Realtors. “We’ll have to wait and see whether demand is enough to absorb the excess supply we have on the market right now.”
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