This report is a reminder that we have had a zero interest world for seven years and that made the credit worth highly attractive as loan customers. Huge numbers qualified and the market expanded. Now the reverse will be happening but it will be very slow and may well take decade to work through.
The core reason for this is that a small rise in interest rates will sharply impact the capital value of the underlying asset. Cheap money drove $100.000 houses to $1,000,000 houses in Vancouver over thirty five years as mortgage rates dropped from 17% down to 3%. We had a carefully managed mortgage market to do this but the result is the same. The last half million or so demanded little decline, but a sharp expansion in qualified demand.
A small increase in interest rates will put everyone into a defensive mode.
Meanwhile, not only are banks operating illogically, they are centralizing the illogic. The giant Wall Street banks have been snapping up local and regional banks, thereby eliminating the hands-on, personalized approach to lending. Most banks are now highly centralized bureaucracies. That’s great if your need is shaped like their cookie cutter. If it isn’t, the big bank can’t help you.