The Middle East war is impacting something most Canadians may not have expected: the cost of some mortgages.
Last month, three- and five-year fixed mortgages increased by 0.5 per cent in just three weeks, said Marshall Tully, a Toronto-based mortgage broker.
“Unfortunately, it’s possible that trend could continue,” Tully said.
According to the Canada Mortgage and Housing Corporation (CMHC), 1.4 million mortgages will be renewed by the end of the year, representing about 23 per cent of all mortgages. Many of those would have received much lower rates from 2021.
“Many people are coming into their renewals totally blind and thinking that rates just keep coming down or holding," he said.
Tully said fixed-rate mortgages have risen particularly quickly because they are backed by bond yields, which can fluctuate in response to world events like wars. And U.S. President Donald Trump’s prime-time address on Wednesday offered little new insight on how long he expects the conflict to last.
During a past major Iranian conflict, in the 1980s, a near worldwide recession was triggered, which saw interest rates spike to around 20% in Canada for a while, hovering over 10% for 3+ years. The basic triggers were the energy sector disruption from the conflict in Iran, US monetary policy screwing trade partners, and rising unemployment (generally resulting from softened export demand). Here’s a snippet from Wikipedia about the period, which sounds awfully similar to what’s going on these days…
Canada had higher inflation, interest rates, and unemployment than the United States during the early 1980s recession. While inflation accelerated across North America in the late 1970s, it was higher in Canada because of the US decision to switch to a floating exchange rate, which lowered the value of the Canadian dollar to US$0.85 by 1979, which made US imports more expensive for Canadians to purchase. Canada’s inflation rate was 10.2% for 1980 overall, rising to 12.5% for 1981 and 10.8% for 1982 before dropping to 5.8% for 1983. To control its inflation, the US introduced credit controls producing a slump in demand for Canada’s housing and auto industry exports in early 1980 thereby triggering the early first portion of the recession in Canada. Most Canadians were also hit hard financially by a steady rise in oil and gas prices during the 1970s, especially their acceleration in 1979 when the worldwide oil supply was disrupted by the Iranian revolution, with the price of oil reaching almost $40 a barrel compared to $3 a barrel at the start of the decade.
So, yeah. Things could get messy. The boomers and GenX saw the 1980s recession, noted that it was triggered by Canada being so entangled to the US, and then they just kept on with the status quo. This time around the states may even be hoping/planning on it getting messy, with the idea that they can basically use that recession to take over. They’ve explicitly noted they view Canada as a target they can “acquire” through economic warfare, without needing military involvement – all it’d potentially take is a recession, and a cuba-style trade embargo (made easier if they ‘get’ greenland, which they haven’t ruled out ‘force’ to take).
