The Bank of Canada is gearing up for a significant economic challenge as the nation braces itself for a massive wave of mortgage renewals in the coming years. A staggering nearly $1 trillion in mortgage renewals is slated for completion by 2026, and this impending financial tide is poised to usher in a notable surge in the average monthly mortgage payments. The repercussions of these increased payment amounts are anticipated to create a demand shock, particularly in the housing sector, potentially triggering a ripple effect across the entire economy.

Diverging from previous reports that primarily highlighted stress within the housing market, our latest analysis exposes a broader macroeconomic impact. By cross-referencing data from the Bank of Canada’s Financial Stability Review and the Canada Mortgage and Housing Corp (CMHC), it becomes apparent that approximately two-thirds of mortgages, based on value, are up for renewal within the next five years. The majority is expected to unfold between 2024 and 2025, with the remainder occurring in 2026, signaling an overall concerning trend.

Already, there has been a substantial uptick in the average monthly mortgage payments since the commencement of the hiking cycle in 2022. In February 2022, the average payment stood at $1,460, but the figure has now surged past $1,900, representing a significant 30% increase. Projections indicate a continuous upward trajectory, with expected increments of 15%, 30%, and 45% by the close of 2024, 2025, and 2026, respectively.

The repercussions of these mounting mortgage payments extend beyond individual households. As a greater portion of income is allocated to mortgage expenses, there is a subsequent reduction in discretionary spending on goods, services, and leisure activities. This decline in per-capita disposable income, estimated to undergo a 20% reduction by the conclusion of 2026, poses a substantial threat to overall economic demand.

While these calculations outline a theoretical upper limit, recognizing that numerous households may struggle to absorb such a considerable increase in mortgage costs, potential coping mechanisms are being explored. Some households may opt to restructure their mortgage payments, while others may contemplate downsizing their homes. However, these adjustments carry the risk of exacerbating downward pressure on house prices and heightening concerns within the housing market.

Overall, the impending wave of mortgage renewals in Canada necessitates proactive measures from the Bank of Canada. Aggressive easing policies are deemed imperative to avert a potential crisis and alleviate the adverse effects on the economy.