Long-Term Interest Rate Hike Sparks Generational Inequality Concerns

The recent spike in interest rates is not just a temporary phenomenon, but a long-term trend that could persist for decades. According to Mike Moffatt's analysis, rising mortgage rates are widening generational inequality and creating affordability challenges for young people. The current rate hike is driven by global energy price inflation after the closing of the Strait of Hormuz, causing gasoline and diesel prices to spike.

As a result, the Federal Reserve hiked interest rates in September, its first rate hike in three years, and markets are anticipating more hikes to come. This trend is not unique to Canada, as U.S. 30-year mortgage rates have exceeded 7% and the yield on a 10-year U.S. government bond recently broke the 5.2% barrier.

The relative supply of funds available to borrow and demand for them are key drivers of rate changes. Inflation is also a crucial factor, as it shapes central banks' rate decisions. The trend of rising interest rates creates affordability challenges for young people who are already navigating high housing costs and will ultimately pay for the interest on growing government debt to support an older population.

Realtors had predicted a modest housing comeback this year, but rising mortgage rates are now dashing those hopes. Governments across Canada should recognize that young talent will move to countries that best address these challenges. They can make it easier and less expensive to build new homes, allowing lower prices to offset higher interest rates.