Yahoo Finance Posthaste: How higher savings rate might not save Canadians from the mortgage cliff
There’s an idea out there that Canada’s rising savings rate could buffer homeowners from the looming challenge of higher mortgage payments.
The numbers look encouraging. The savings rate hit 7.2 per cent in the second quarter, up from 6.7 per cent in the first and far above the 2 per cent average in 2019, and some have interpreted this as a sign that homeowners are putting money away to deal with higher mortgage payments to come.
However, a report by CIBC Capital Markets out this week questions this narrative and argues that upcoming mortgage renewals remain a threat that may force the Bank of Canada to cut interest rates lower than expected.
“The higher household savings rate seen post-pandemic appears to be no saving grace for homeowners with upcoming mortgage renewals,” wrote CIBC economist Andrew Grantham.
“Not only may the true amount of excess savings in the economy be less than implied by this simple measure, but the distribution appears to be tilted towards the least vulnerable households.”
Grantham argues that the household savings rate is “far from a perfect gauge of excess liquidity,” and the money Canadians supposedly socked away during the pandemic and after may be less than it appears.
Other measures such as bank deposits and financial assets may give a truer picture and these suggest excess savings at between 5 and 13 per cent of household income rather than the 25 per cent suggested by the national accounts figures, he said.
Then there is the question of who is holding these savings. Again data suggest that it is not the people who need it the most.
Quebec, in fact, holds almost three-quarters of excess bank deposits in the country, said Grantham, not Ontario and British Columbia which saw the largest growth in mortgages during the pandemic.
Sixty per cent of the savings increase in 2023 was driven by homeowners without a mortgage, a group that represents about a quarter of the population.
By income, the highest and lowest quintiles account for most of the increase in the savings rate, with the middle two — the households that took on the most mortgage debt — actually showing a decline in savings, compared with 2019.
“Because of that the wall of mortgage renewals looming next year and in 2026 remains a downside risk to the economy, even as interest rates move lower,” said the economist.
Grantham says the higher savings rate may boost the economy as lower interest rates encourage those who are saving to spend more.
“However, the wall of mortgages coming up for renewal next year and in 2026 remains a threat, and the Bank of Canada may have to take interest rates slightly below neutral to mitigate the risk at that time,” he said.
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The world wants tin, but hardly anybody wants to produce it.
The energy transition has boosted demand for the silvery white metal, which is key in the electronics sector. Electric vehicles require two to three times more tin than gas-powered autos, and tin use in the solar industry has grown sixfold in the past decade.
Tin, though, is in short supply. Production has stagnated for almost two decades, depleting global inventories, say analysts with BofA Global Research. New challenges sprang up this year when mining was suspended in Myanmar’s Wa State, the top supplier for China, the world’s largest tin consumer, say analysts with BofA Global Research.
Exports from Indonesia, the second largest producer, also fell over delays to the issuance of mining licences.
All this promises to push prices, already up 20 per cent year to date, even higher. BofA expects tin to rise another $2 a pound by 2026.
U.S. presidential debate between Kamala Harris and Donald Trump in Philadelphia at 9 p.m. ET
Bank of Canada governor Tiff Macklem speaks at the Canada-United Kingdom Chamber of Commerce today in London.
Dave McKay, chief executive of Royal Bank of Canada, will give a luncheon speech at the Canadian Club Toronto.
Canada Fintech Forum opens in Montreal, showcasing emerging global trends in financial technology
Carbon Capture Canada, a pan-Canadian convention showcasing Canada’s offerings in carbon capture, utilization and storage opens in Edmonton
Jeff Hoffmeister, chief financial officer at Shopify, will participate in a fireside chat at the Goldman Sachs Communacopia & Technology Conference in San Francisco
Today’s Data: United States wholesale trade and consumer credit
Earnings: Oracle Corp.
Could Kamala Harris’ proposal to tax unrealized capital gains be adopted in Canada?
Yet another Canadian miner looks to exit the country, amidst curbs on Chinese investments
Why a U.S. global tariff is the real existential trade threat facing Canada
Seasonal market weakness is upon us, but there are still ways to play it
A lot of money has plowed into money markets, guaranteed investment certificates and short-term bonds — five per cent yields will do that. But wealth planner Ted Rechtshaffen says rates are dropping, so conservative investors face a problem in keeping investment yields high without taking on too much risk. Find out more
Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you wondering how to make ends meet? Drop us a line with your contact info and the gist of your problem and we’ll try to find some experts to help you out, while writing a Family Finance story about it (we’ll keep your name out of it, of course). If you have a simpler question, the crack team at FP Answers, led by Julie Cazzin, can give it a shot.
McLister on mortgages
Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.
Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.
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