How Rates Affect Canada

GORDON THOMPSON builds homes for first-time buyers. But mortgage rates of 14 to 14.5 percent have dried up his business in the last three weeks. ``The sad thing is that people come in and make a decision to buy, but when they get to the bank, they find out they don't qualify for a mortgage,'' explains Mr. Thompson, the president of Candev Building Corporation, based in Toronto. He says his company has ``nothing on the order books'' for next year.

Thompson, who is also the president of the Canadian Home Builders Association, is not alone. He says the entire Canadian housing industry has stalled, which could result in significant layoffs. The industry, Canada's largest, employs more than 300,000 workers.

Since most Canadian builders are entrepreneurs who build fewer than five houses per year, few have the funds to weather a long recession. And, with the Canadian dollar kept up by the high interest rates, few Canadian builders can compete in the US market.

The high interest rates are pinching almost all Canadians because most mortgages are linked to short-term interest rates. Unlike the US, most Canadian banks do not make 15- to 20-year fixed rate mortgages. Thus, most Canadians have to renegotiate their mortgages every two or three years. ``This is creating hardship cases for someone who is not even a first-time buyer,'' Thompson says.