All five of Canada's major banks are now engaged in a war for home buyers that will likely alarm policy makers concerned about Canada's record levels of household debt.
But what may alarm economists may also be music to prospective home buyers' ears: All five major banks are now offering fixed-rate mortgages for four or five years at 2.99 per cent.
The Bank of Montreal got the ball rolling earlier this week, announcing a five-year fixed rate mortgage at 2.99 per cent and an all-time record low for a 10-year fixed rate mortgage, at 3.99 per cent.
CIBC, TD Bank and RBC all followed suit on Thursday, and Scotiabank threw its hat into the ring on Friday, introducing a four-year fixed mortgage at 2.99 per cent.
Even smaller financial institutions are getting in on the game. FirstOntario Credit Union announced Friday it is dropping its rate on five-year fixed mortgages to the same rate as the big banks.
Three of the banks -- CIBC, TD and RBC -- made similar moves in January, dropping their lowest rates to below three per cent. But the banks raised rates again within weeks, citing increasing funding costs.
At the time, Ottawa put pressure on the banks to raise their rates and raised concerns lending standards were becoming too loose.
Many economists blame irresponsible lending -- and borrowing -- for the housing crisis that has plagued the U.S. for the past five years. A recently unearthed report from the Office of the Superintendent of Financial Institutions stated that many of Canada's mortgages are beginning to resemble the sub-prime loans that went bust in the U.S. crisis.
A report in The Economist last year asserted that Canada's housing market is more overheated today than the U.S.'s was when housing prices began to fall.
In its latest interest rate announcement, the Bank of Canada called household debt the "biggest domestic risk" to the economy.
But house prices, which continue to rise across the country, could stall if the Canada Mortgage and Housing Corporation reaches its debt ceiling. The CMHC insures mortgages taken in Canadian banks, and is quickly approaching a $600-billion cap on its insurance policies.
Analysts in the U.S. and elsewhere are beginning to compare the CMHC to Fannie Mae and Freddie Mac, the U.S. government-run mortgage issuers and insurers whose toxic loans cost the U.S. $145 billion and counting.
