Annual State of the Residential Mortgage Market in Canada

Canadians say they are comfortable with their mortgage debt but fewer homes are being built: CAAMP

The Canadian Association of Accredited Mortgage Professionals (CAAMP) releases annual fall survey report on residential mortgage market

TORONTO (November 19, 2013) – Canadian mortgage holders have told the Canadian Association of Accredited Mortgage Professionals (CAAMP) in its fall 2013 survey that they are comfortable with their mortgage debt levels and consider mortgages to be a form of “good debt.” The Annual State of the Residential Mortgage Market in Canada report, released today, was authored by CAAMP Chief Economist Will Dunning.

This level of comfort may be due to the fact that Canadians believe they are in control of their mortgages: taking aggressive actions to pay them down, leveraging their equity to consolidate debt or make new investments, taking advantage of low interest rates and increasingly turning to mortgage brokers rather than major banks for their mortgage needs.

• Mortgage brokers are gaining share in the overall mortgage market compared to traditional financial institutions: among all new mortgages obtained this year, 40 per cent were obtained through a mortgage broker and 42 per cent from a bank; overall the broker share in the industry has increased from 25 per cent to 28 per cent since last year
• Confidence in the market is strong: less than 10 per cent of Canadians expect that a housing bubble will burst, though the expectation is stronger among younger people
• 80 per cent of homeowners selected at least one of the following emotions when asked about their mortgages: comfortable, confident, content, secure
• More than 80 per cent of Canadian homeowners have at least 25 per cent equity in their homes
• Of the new homes purchased in the past year, 57 per cent were purchased by first time buyers
• 68 per cent of Canadians feel mortgage debt is “good debt”
• For mortgages repaid in the past two decades, actual repayment periods have been 30 per cent shorter than original contracted periods
• This year, 38 per cent of mortgage-holders took steps to accelerate their repayments and shorten their amortizations
• CAAMP projects housing starts in 2014 could be well below CMHC predictions, as much as 17 per cent lower than the average between 2010 and 2012

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First-Time Down Payments

A wide majority of first-time buyers-to-be plan to put down less than 20%, according to new data  from RBC/Ipsos.

Here’s the breakdown of their expected down payments:

  • 10% or less (62% of respondents)
  • 11-20% (26% of respondents)
  • More than 20% (12% of respondents)

Over half of newbie homeowners will likely pay the maximum default insurance premium to buy their home.* That maximum ranges from $2,750-$2,900 per $100,000 of purchase price (i.e., 2.75%-2.90%), depending on the source of down payment.

Survey details:  These findings come from an RBC / Ipsos Reid poll conducted between January 31st and February 8th, 2013 on behalf of RBC. The sample was 3,005 Canadian adults from Ipsos’ Canadian online panel.

* This is the maximum default insurance premium for fully qualifying borrowers (i.e., those who can prove their income).

Housing Won’t Bounce Back So Quickly This Time – Dunning

How many times have we heard analysts imply that home sales will bounce back from mortgage rule changes within two to three quarters? This has been a common assertion from people who downplay the consequences of the July 2012 mortgage rules. But one man says that it’s an argument not grounded in fact.

Guideline B-20

Residential Mortgage Underwriting Practices and Procedures (the Guideline) sets out the expectations of
the Office of the Superintendent of Financial Institutions Canada (OSFI) for prudent residential mortgage
underwriting, and is applicable to all federally-regulated financial institutions (FRFIs) that are engaged in
residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada.
The Guideline does not apply retroactively to residential mortgages already in place. OSFI’s expectation
is that the FRFIs are to be in full compliance with the Guideline by the end of the 2012 fiscal year and
OSFI has indicated that, where possible, FRFIs should comply with the principles and expectations set
out in the Guideline as of June 21, 2012.

The Guideline covers any loan to an individual that is secured by a residential property (i.e., one to four
unit dwellings), home equity lines of credit (HELOCs), home equity loans and other such products that
use residential property as security.

The Guideline sets out five fundamental

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More Young Buyers Being Sidelined

When Ottawa cut the maximum allowable amortization and gross debt service ratio on insured mortgages, it was bound to have a disproportionate impact on first-time buyers (FTBs). Young buyers are extra sensitive to anything that impairs affordability.

That may explain why first timers are staying out of the market in increasing numbers, at least according to a new RE/MAX survey.

The survey suggests that only 30% of prospective buyers over the next two years will be FTBs. If that doesn’t seem unusual, consider that 43% of buyers were first timers as recently as 2009.

The trend in FTB activity has steadily fallen for more than three years.


Chart source: RE/MAX, 2013
Chart source: RE/MAX, 2013

“There’s no question that first-time buyers are experiencing a period of readjustment,” says Gurinder Sandhu

“There’s no question that first-time buyers are experiencing a period of readjustment,” says Gurinder Sandhu, EVP and Regional Director of RE/MAX Ontario-Atlantic Canada. “…Affordability took a hit in 2012.”

That affordability factor has been hurt by more than just mortgage rules. Another reality delaying FTB purchases is that home prices in some areas have risen at over double the pace of income. That’s left young people with fewer options than older buyers with more resources.

The survey revealed other notable stats as well:

  • 36% of intended home buyers earn less than $50,000.
  • 40% of purchasers aged 18-34 intend on putting down 20% or more on their home.
  • 7% of buyers expect to make a down payment of 5%.
  • 14% plan to put down 10%.
  • Of all buyers putting down 30% or more, 45% were aged 55+.
  • Just 1% of those surveyed intended to spend over $1 million on their home.

(Killing high-ratio mortgage insurance on homes over $1 million was a politically easy target for Jim Flaherty. Yet, of the four mortgage rule changes last July, this one will have the least practical effect on reducing insurer and governmental risk.)