on Sept. 8: “Let me reassure those of you who oppose a loosening of underwriting standards that OSFI will not do that.”
OSFI contends this would add risk to the banking system. Albeit, some would argue the risk is insignificant in cases where borrowers lock in a mortgage for five full years. After all, they’d pay down their mortgage significantly in that time, on top of getting pay raises and – in more typical markets – price appreciation.
Technically, any stress test that makes it harder to qualify for a mortgage, thus removing demand amid a sell-off, is pro-cyclical. It’s a question of how much more home prices fall because of it. The more prices fall, the less equity there is to protect financial institutions from borrower defaults.
Not long after, when the Bank of Canada starts easing monetary policy again, that’ll pull down mortgage rates even further.As for how long, Andrew Hunter, senior U.S. economist at Capital Economics, said in a report on Wednesday, “We still expect a sharp fall in inflation to eventually persuade officials to start cutting rates in the second half of next year.”
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