www.bankofcanada.ca/wp...121213.pdf
Dec 12, 2013
Bank of Canada Governor Stephen Poloz said the central bank’s policy stance is weighing the risk of a sharp correction in the housing market against the threat that price movements will fall into deflationary territory.
Poloz said today home buying has picked up “mainly because people pulled forward their plans when mortgage rates started to move up during the summer. We expect these imbalances to stabilize and then gradually unwind in coming years"
While the central bank’s base case assumes a “soft landing” in the nation’s housing market, “there is a risk that household imbalances could keep building and set the stage for a sharp correction down the road,” he said.
As I had predicted this phenomenon back in early July (when rates were just starting to creep up), I'm not surprised. Where I estimated inaccurately was the length of pre-approval (apparently usually 90-120 days), and the ferocity of people applying and exercising their rate-holds.
Here are what the other banks think about this Rate-hold phenomenon:
Scotiabank: “this would feed into our view that sales rose over the spring and summer at the expense of future months as people exercised options to purchase within 90-120 day mortgage rate commitments on fears of losing the juicy rate commitments back in the spring. I maintain the view that the spring and summer market was a temporary interruption along a correcting sales path”
CIBC: “there’s a huge amount of mortgage debt already in the pipeline that was created when people took advantage of rates they were pre-approved for in the summer. “I’ve seen what is in the pipeline in mortgage activity and you won’t believe the numbers when it is official.”
TD: ““The resurgence in sales activity over the course of this year was likely driven by a frontloading of demand by borrowers with mortgage preapprovals jumping into the market to get ahead of the deterioration in affordability,” Fong said.”
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