After the rate decision, the benchmark Canadian stock index dropped to its lowest level since March 2021, but it soon recovered and was trading flat by late afternoon.
According to Sohrab Movahedi, banking analyst at BMO Capital markets, the housing market has held up in part because of the way the product is designed: banks pre-approve or give customers a commitment on home loans.
Banks hedge themselves, he said, based on assumptions on what would result in actual loans.
“In all likelihood with the rates moving higher, the proportion of those commitments that ends up in a loan will be lower than usual. More people will choose to either buy smaller houses or defer the purchase,” Movahedi said.
“If the economy is going to slow down from here, then earnings growth prospects for the banks will also slow.”
