home financing

Households facing mortgage resets next year at much higher levels will likely have to curb spending more than they have so far, suggests new research from TD Economics.

In a new report — which analyzes shifts in spending in the face of rising interest rates utilizing mortgage and credit card data from the bank’s customers — TD finds that households without mortgages have increased their spending over the past year, despite rising rates.

“Strong employment gains and rising wages have apparently been enough to support increases in consumer spending,” it said, noting that the majority of households do not have a mortgage.

At the same time, the research found that, among households that do have mortgages, the timing of their renewals matters to their spending.

Notably, households that have reset their mortgages this year have reduced spending more drastically than households that renewed their mortgages in 2022 and 2021.

According to the report, spending is down 0.9% for households that renewed in 2021, down 1.4% for households that reset their mortgages in 2022, and down 2.4% for households that had to reset this year.

Looking ahead to 2024, the research found that “consumers who are scheduled to reset rates in 2024 have yet to pull back spending as much as they likely will have to next year.”

While these households have reduced spending by about 0.5%, “likely as a precaution, knowing a sizable payment shock may be coming,” the report suggested they will likely cut spending more aggressively next year.

“Given that the 2024 cohort looks set to renew their mortgage at rates 200 basis points higher than they are paying now, they will be experiencing a similar payment shock to the 2023 cohort,” the report said. “In this case, total spending within the economy would be pulled down by an additional 0.5 percentage points.”

On its own, this reduction in consumer spending isn’t expected to be enough to drive the economy into recession. However, the report concluded that “the Canadian consumer is becoming increasingly stressed by high interest rates.”