Price Movements in the Canadian Residential Mortgage Market

The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Their results suggest that the residential mortgage market is imperfectly competitive. They find distinct price leaders and that, as market concentration increases, so does price dispersion - helped by the increased use of discounting from posted prices. The authors also find that, although banks' pass-through of input price changes to mortgage prices is complete in the long run under reasonable assumptions regarding discounting, there exists some level of pricing asymmetry in the short run.