Photo: James Bombales
Earlier this year, CIBC predicted that the number of new mortgages it would grant in the second half of 2018 would be cut by 50 per cent, as a new mortgage stress test dissuaded buyers from entering the housing market.
But according to a new report from CIBC World Markets, even if that prediction comes to pass, it likely won’t affect Canada’s big banks all that much.
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If the banks stopped expanding their mortgage portfolios entirely, their future profits would drop by just 1 per cent, writes CIBC analyst Robert Sedran, in a recent report.
“We view slowing mortgage growth as a very manageable headwind,” he writes.
Sedran argues that investors are too prone to focus on what could go wrong in the economy, rather than what is going right, and says that mortgage profits make up a relatively small part of Canadian banks expansion efforts.
The report is backed up by the strong Q2 2018 earnings of Canada’s big banks, despite slowing mortgage applications.
CIBC saw its mortgage book grow by a relatively low 7 and 9 per cent in Q1 2018 and Q4 2017, yet the bank’s earnings per share in Q2 2018 were $2.95, up from $2.64 in Q2 2017.
Other banks had similarly good reports, despite concerns around slowing mortgage growth. RBC saw net income increase by 9 per cent, while TD saw earnings per share rise to $1.62, up from $1.34 in Q2 2017.
What does this mean for the Canadian housing market heading into the tail end of 2018? Potentially that home sales will continue to stay low, as the new stress test keeps would-be homebuyers from applying for mortgages.