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Streetwise Mortgage growth dropped off dramatically last September

Finance Minister Jim Flaherty talks to reporters prior to the release of his budget in Ottawa on March 21, 2013.

FRED CHARTRAND/THE CANADIAN PRESS

Finance Minister Jim Flaherty's fight against low mortgage rates is going to keep running up against a market reality – banks need to sell more mortgages after growth in mortgages slowed dramatically at the end of last summer.

Streetwise's regular dig through the Bank of Canada's financial statistics show that the numbers are very clear. After a last gasp of mortgage growth in August, the pace of growth in the mortgages held on chartered bank balance sheets slumped. It turns out the last time we looked at this, as of the September numbers, we were seeing the end of the good times. In the months since, a new reality has set in.

Over the nine months up to and including August 2012, the growth in the amount of mortgages held by all Canada's chartered banks averaged 0.57 per cent a month. In the six months from September to February, the last month for which the central bank posts aggregate numbers, average monthly growth declined to 0.41 per cent. That's a decline of almost a third in the monthly rate of growth. (The numbers include one month, February, for which the banks have yet to report earnings as that is the first month of their second quarter.) That downshift is going to fuel a continuing tenacious fight for market share. And that means banks will continue to be willing to take slimmer spreads on loans to generate volume. And that is going to feed the temptation to have the kinds of price wars that Mr. Flaherty so dislikes.

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Toss into the hat bond-market funding costs that are as low as they have been at pretty much any point in two years, and mortgage rates are going to stay very low. Probably far too low for Mr. Flaherty's liking.

So while the top executives at banks may voice some outward sympathy for what Mr. Flaherty is trying to do, as Toronto-Dominion Bank chief executive officer Ed Clark did recently, expect to see branch managers and others pushing hard for the lowest rates possible to retain clients and win new ones. One suspects there may be a lot more stories like this and this, highlighting that mortgages that Mr. Flaherty won't like are still easily available.

If he is going to continue to try to push mortgage rates higher, Mr. Flaherty is going to have to look at other tools.

(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)

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