Millennials are feeling higher rates in their wallets

More than half of Canadians under 35 years old said they are spending less because of recent interest rate increases, according to a survey by Nanos Research.

Some 30 per cent of respondents in that bracket report higher rates are having a negative impact on their personal spending, with another 23 per cent saying the effect is somewhat negative. Among respondents of all ages, 41 per cent reported at least a somewhat negative effect from higher rates. Nanos conducted the polling on behalf of Bloomberg between April 28 and May 4.

The survey suggests that higher borrowing costs are already beginning to curb demand in the economy. It also underscores how the impacts will reverberate well beyond real estate as households offset rising interest payments by cutting back on other things. A slowdown in consumer spending is the primary reason why most economists — including those at the Bank of Canada — are anticipating the economy is poised to drop off in coming years.

“Research suggests that age is a significant determinant of the possible impact of rate hikes on the personal spending of Canadians,” said Nik Nanos, chairman at Nanos Research. “The spending of younger Canadians, under 35 years of age, will likely be squeezed the most.”

The situation is particularly acute for younger Canadians borrowing to buy into a housing market that has seen prices double in cities such as Vancouver and Toronto over the past decade.

Because households have amassed record levels of debt during the recent period of extremely low borrowing costs, the Bank of Canada predicts the economy is as much as 50 per cent more sensitive than before to rate hikes. Canada’s central bank has raised borrowing costs three times since July, and investors are anticipating two more increases later this year.

Source: BNN Bloomberg

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