A “sudden increase” in interest rates could send house prices crashing and unemployment rates soaring, data released Thursday by the Canada Mortgage and Housing Corporation (CMHC) suggests. The Crown corporation tested a collection of extreme hypothetical scenarios including a “US style housing crash,” an interest rate hike and even a devastating earthquake as part of an annual stress test. The CMHC’s stress test indicated that a “sudden increase” in interest rates, resulting in higher borrowing costs for Canadians, could cause housing prices to fall 30 per cent, while pushing unemployment as high as 11.3 percent. Higher interest rates tend to reduce spending and investment, which can result in higher unemployment.
CEO of Ontario Real Estate Board, Tim Hudak joins the John Oakley show to help us break down the study and explains how a spike in interest rates could affect first time home buyers.