Confusion and angst. That’s what TD caused with its 45-basis-point 5-year posted rate hike on Friday.
But as it turns out, no other banks matched it, at least not yet. Unless you’re a TD customer, the bank’s gambit should have limited ill effects.
Status Quo with the Stress Test
The fear was other banks might follow TD and make the government’s mortgage stress test significantly harder to pass.
The reason the MQR didn’t change was twofold:
- BMO and Scotiabank hadn’t announced posted rate hikes by the Bank of Canada’s 11:30 A.M. polling cutoff yesterday (Wednesday).
- CIBC shrewdly hiked its 5-year posted to 5.14%, causing the MQR to remain at 5.14% (thanks to the government’s mode average calculation method).
Stay Tuned Next Week
The MQR could move next week if/when BMO and Scotiabank announce new rates. It they hike, we’ll put our money on the MQR going to 5.34%.
That would be a 20-bps increase, which isn’t the end of the world. A 20-bps hike to the benchmark 5-year fixed rate means a 1.5 per cent reduction in homebuying power, give or take.
Analysis from TD Economics a while back suggested a 20-bps rate hike results in a 0.20 percentage point “permanent decline in existing home sales.” But the psychological damage of this week’s ominous rate hike headlines may be worse than the actual reduction in qualified borrowers.
This week’s rate hikes do little on their own to upset the housing apple cart. If Poloz and company jack up rates another 75-125 bps or so, then we’ll start worrying.
That said, if you’re shopping for a mortgage, big bank fixed-rate hikes may incrementally add to your borrowing cost burden, especially if you’re a TD customer.