Sudden rise in interest rates could cause home prices to drop 30 per cent: CMHC
TORONTO — A sudden rise in interest rates could cause house prices to plummet on average 30 per cent nationally, according to stress tests performed by Canada’s federal housing agency released Thursday.
Canada Mortgage and Housing Corp. said it studied the impact of two interest rate hikes — a one percentage point increase over one quarter this year, followed by a 1.4 percentage point rise during one quarter next year.
CMHC said its mortgage insurance business would incur $1.13 billion in losses in such an event but that it could withstand the hit. A spokesman for the agency stressed that the scenario is an “extreme case” and would be unprecedented.
Interest rates have started to go up this week as a sell-off in the U.S. bond market has driven bond yields higher, making it more expensive for banks to access capital.