Sask. residents already in debt prior to recent rate hike announcement

It will cost more to borrow after Wednesday’s interest rate hike by the Bank of Canada, hitting Saskatchewan at a time when residents are already struggling financially.

Rates are now up to five per cent after a 25-point basis raise, the highest they have been in 22 years,  This is the second raise in two months.

“What is really alarming is that message that… this is potentially, certainly not the last,” said Chris Guérette, CEO of Saskatchewan’s Realtor Association.

The Bank of Canada’s policymakers said they were concerned a tight labour market and a resilient economy could make it more difficult to tamp down inflation.

The Bank of Canada also released a new monetary policy report on Wednesday with revised expectations for economic growth. The central bank now expects gross domestic product (GDP) growth of 1.5 per cent in both the second and third quarters of 2023. On the year, the Bank expects GDP growth will be stronger than first expected in 2023 and slightly weaker in 2024.

A recent consumer debt index from MNP said that nearly half of Saskatchewan and Manitoba residents were already $200 away or less from meeting their financial obligations last quarter. This includes more than a quarter of those who say they already don’t make enough to cover their bills and debt payments.

“The average Manitoba and Saskatchewan resident says they’re spending an additional $227 per week on essential items compared to a year ago,” read the report.

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Two-thirds of residents said their weekly spending on essentials has increased by at least $100. A quarter said it has increased by between $100 to $200.

“With the impact of the interest rates and the cost of living, it’s definitely impacting consumers,” said MNP trustee Michelle Scheller in Saskatoon. “People are finding themselves in more dire situations.”

She said this has been confirmed through an increase in insolvency filings and expects it to keep rising.

“Consumers are much more aware of where they are spending their money,” Scheller said. “They know they have to be mindful of it, reduce costs, on essentials they may cut back on things they normally would buy or cut back to cheaper items to try to fit within the budget. In surveys in the past, we have seen consumers foregoing some of those items which are essentials. The increased cost of borrowing and servicing that debt, jumping into a large purchase may not be the best decision right now.”

The report claimed that three in five Saskatchewan and Manitoba residents say they are still feeling the effects of interest rate hikes, although this has dropped five points since last quarter.

“There is sort of a delayed response in all of this,” Guérette said. “When you sign for a mortgage, you can sign from any kind of timeline to whatever suits your needs best. For individuals who have been in a mortgage for quite some time, they’re not feeling necessarily the pressure of the interest rate hikes on their mortgage, but they will when they have to resign again.”

She said the more time passes, the more people are going to be affected by the hikes and more are going to be pushed towards renting, instead of home owning.

“As soon as you impact one section of the continuum, whether it be purchase, rental, it actually has a downstream effect to everything below,” Guérette said.

Guérette also noted that younger people are more likely to be hurt by further rate hikes than the older population.

“Our average is typically younger especially in urban centres and those are going to be the individuals who are going to be impacted more that the older generation because they want to get into the housing market,” Guérette said. “For every $10,000 dollars in the increase of the price of an average home, that means there is one percent of your population that can no longer afford to buy.”

The central bank said they don’t expect inflation will decline to two per cent until the middle of 2025.

Bank of Canada governor Tiff Macklem told reporters Wednesday that while the central bank’s governing council feels the rate hikes to-date have made “considerable progress” in slowing inflation, “underlying pressures are proving more persistent than expected.”

“Look at that budget, see where you can cut back, see what changes you can make in that to make it more manageable,” Scheller said. “Reach out to your lender, if you are starting to get behind on payments, miss payments.”

— With files from Global News’ Craig Lord and Dave Giles