Canada’s mortgage market has never seen the likes of 2009. It was a year that started in fear, ended in hope, and set lots of records along the way. Below are five of the year’s top mortgage trends:
1. Unwinding Liquidity Crisis
2009 began with investors fearful that fallout from U.S. mortgage defaults would spill into Canada. Side effects included:
Whopping risk premiums on mortgage pricing
Disappearing lenders: Canada lost some big foreign lenders this year as their parent companies pared back their mortgage exposure. They included GE Money, Wells Fargo, Citi Financial, and Seniors Money (at least temporarily). Abode, Canadian Tire, and Citizens Bank also stopped mortgage lending in 2009.
Less insurer competition: Lenders and investors began to perceive CMHC-insured mortgages as less risky and easier to re-sell (due to CMHC’s 100% federal guarantee…versus Genworth’s and AIG’s 90% guarantee). That amplified CMHC’s competitive advantage, to the detriment of Genworth and AIG.
Government assistance: Canada didn’t have big lender bailouts like in the U.S. and Europe, but we did have the IMPP. Many credit Canada’s government-backed mortgage market with preventing the real estate panic witnessed elsewhere across the globe. Indeed, Canadian real estate values actually did the unthinkable during a recession: rose.
Commercial financing drought: It was tougher than ever to find money for commercial deals in 2009. Whereas a condo developer might have got financed at 80% LTV and 30% pre-sales in 2006, similar deals were often spurned at even 60% LTV and 65% pre-sales in 2009.
2. Historic Rate Lows
Prime rate, fixed and variable mortgage rates, and Canada’s overnight rate all made record lows in 2009. Many feel we may not see their equivalents for years to come.
(Click chart to enlarge)
3. Re-emergence of Banks and Balance Sheets
Fears of mortgage defaults made investors demand fat risk premiums for mortgage capital in early 2009. As people piled money into insured savings accounts, deposit-taking lenders gained a big advantage in funding costs.
Banks were then compelled to reinvest their boatloads of deposits. As a result, banks slashed their discretionary mortgage rates and once again emerged as aggressive competitors in the marketplace.
4. Changing Lender Priorities
Intense competition and tighter margins led several lenders to tweak their business models in 2009. As a result, brokers saw:
More focus on efficiency metrics: Lenders became gung ho on approval ratios, closing ratios, and seemingly anything else with “ratio” attached to it.
Lender selectivity: Some lenders felt it necessary to trim their list of authorized brokers, in an effort to chase perceived efficiencies. This alienated thousands of lower-volume brokers and became what Merix CEO, Boris Bozic, termed an industry “problem.”
Reduced service levels: Record volumes in the Spring led to a severe degradation in service at some lenders. Staffing levels and technology were insufficient and underwriters and fulfilment staff became overmatched. Some lenders adapted but others (who previously had 8- to 24-hour turnaround times) threw their standards out the window, hoping brokers wouldn’t notice.They did notice…
5. Empowered Consumer
Mortgage shoppers under 50 now take to the Internet in epic numbers to research the best terms. They routinely do so even before calling a broker or lender.
This trend reinforced itself in 2009. Consumers found it increasingly easy to compare rates from multiple lenders and tap into countless blogs, forums, and search engines to research mortgage strategies.
We also heard more concern from industry participants that rate comparison sites–in particular–would commoditize mortgages further and switch homeowners’ focus from the best advice to the best rates.
In sum, 2009 was a year for everyone in the business to adapt. Most in the industry seem to think 2010 will be a noticeable improvement over last year. So we’ll end on that positive note and wish each and every one of you the very best the new year can offer.