(Bloomberg) — Canada’s central bank will have to cut interest rates faster and further than markets expect to get ahead of a wave of mortgage maturities that threaten a fifth of the country’s discretionary income, according to economist David Rosenberg.

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The Bank of Canada will be forced to cut 2 percentage points from its policy rate over the next 12 to 18 months, taking it down to 3%, with the process kicking off in the first quarter of next year, Rosenberg, founder and president of Rosenberg Research, said in a telephone interview. 

“It’s going to happen quicker than most people think,” said Rosenberg, who’s known for predicting the 2008 US housing crash when he was at Merrill Lynch. “The economy is going to be in a bad recession. It’s going to be late and they’ll be scrambling.”

Economists surveyed by Bloomberg last month see rate cuts unfolding a bit more slowly. The consensus view is that they’ll begin in the second quarter of next year, with the overnight rate at 3% in the second quarter of 2025. Swaps markets are pricing in three rate cuts by next October.  

Though the central bank is still warning its benchmark rate, currently at 5%, is more likely to rise than fall as inflation persists above its target, other indicators cause Rosenberg to suspect the economy is already in a recession. This will force policymakers to move quickly to get ahead of a wave of mortgage renewals coming over the next few years, he wrote in a research report Tuesday.

“The macroeconomic math relating to Canada’s looming wall of mortgage renewals should be terrifying for the Bank of Canada,” Rosenberg wrote. 

Around two-thirds of Canada’s mortgages by value will be coming up for renewal over the next three years, Rosenberg wrote, shifting borrowers from the ultra-low rates available during the pandemic to much higher ones. That will push the average monthly mortgage payment up by 15% in 2024, 30% by 2025, and 45% by the end of 2026, Rosenberg’s report said — if rates stay at current levels. 

In aggregate, all those extra interest payments would amount to a 20% reduction in the national disposable income by the end of 2026, he wrote.

“If households are forced to funnel more of their monthly income into mortgage payments, that means less for discretionary spending on things like white goods, restaurants, and holidays,” Rosenberg wrote. “That’s an enormous hit to demand.”

And even if consumers take steps to avoid these extra payments, that would only throw up economic headwinds elsewhere, according to the report. Households that opt to restructure their debt would have to draw down their savings. Others who decide to sell their homes will put pressure on an already softening housing market, while those left with no choice but to default will put Canadian banks at risk of losses, the report said.

“If we can do this math, the economists at the Bank of Canada can too,” he added. “That means that the bank will need to switch posture relatively soon.”