Mortgage Rate wars may be coming our way

Mr. Oliver told reporters Thursday in Ottawa. “I listened to [BMO’s] explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

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Reblogged from The Financial Post

TORONTO • Why did Bank of Montreal risk a (verbal) slap from Finance Minister Joe Oliver for daring to chop its five-year mortgage rate below 3%?

Because they knew the mortgage war is going to be different this time.

On previous occasions when the banks publicized rates below the government’s favoured minimum, they found themselves on the receiving end of angry calls from Mr. Oliver’s predecessor, Jim Flaherty, who resigned on March 18.

Mr. Oliver seems in no mood to quarrel with Bay Street and ready to largely leave the mortgage market to its own devices.

“There’s a market and the bank made its decision, and the chief executive officer of the Bank of Montreal informed me about it,” Mr. Oliver told reporters Thursday in Ottawa. “I listened to his explanation, his reasons. I reiterated what I’ve just stated — the government is gradually reducing its involvement in the mortgage market.”

Asked if the government would take further steps if a housing bubble formed, Mr. Oliver said: “I don’t have to get into a hypothetical negative.”

It’s a big change from Mr. Flaherty who didn’t jump on the banks every time they cut rates to new lows but certainly always let them know he was a coiled spring. He also didn’t mind opining on the “hypothetical negative” of what he viewed as overpriced housing in Toronto and Vancouver.

And, without Finance calling out the banks, there is a dearth of negative voices around this high-profile plunge below 3%.
Home loans are simply products that people buy, and when demand is strong the companies that produce those products — the banks — can charge higher prices, said Peter Routledge, an analyst at National Bank Financial. When demand falls off, prices move in the opposite direction.

“What [the rate cut] tells me is that household credit growth is slowing and BMO has reacted to slowing demand in the way one would expect,” Mr. Routledge said. “It’s textbook economics.”

In fact, other lenders are already providing even lower offers for five-year mortgages, though they’re mostly going about it more quietly.

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