It’s that time of year again, time when CAAMP releases the most anticipated mortgage research of the year.

Its latest State of the Residential Mortgage Market in Canada report is fresh off the presses and brimming with tidbits for mortgage data buffs.

In CAAMP’s media release today, President and CEO Jim Murphy expressed optimism at the steps Canadians have taken over the past year to get their fiscal house in order.

“Despite less than positive feelings towards the economy, or maybe because of that, Canadians are showing a level of prudence in their decisions that is inspiring,” said Murphy. “A vast majority of mortgage holders has considerable capacity to afford rises in mortgage interest rates.”

“That suggests to us that there is no need for policy makers to introduce new measures that would reduce housing activity.”

That said, CAAMP noted that there is still a “sizable minority” of 650,000 households who would be “challenged” by rate increases of less than 1%. (Side note: If you’ve got a mortgage and can’t handle a 1% rate increase, maybe it’s time to start looking for a good rental?)

In any case, what follows is a closer look at all the data. As usual, our comments are in italics and this time we’ve highlighted what we found to be extra-noteworthy stats…

The Real Estate Market

• 13.6 million:  The number of households in Canada (9.55 million of these are owner-occupied)
• $3.017 trillion: Value of owner-occupied housing in Canada
• 7.27 out of 10:  Respondents’ average rating of the statement: “Real estate in Canada is a good long-term investment”
  [A rating of “1” means they disagree completely. A rating of 10 means they agree completely.]

• 450,000:  Housing resales in the past year (source: CREA)
• 184,800:  Number of housing starts forecast for 2011 (vs. 190,000 in 2010)

The Mortgage Market

• 5.80 million: Number of owner-occupied households with mortgages
• 3.75 million: Number of owner-occupied households that do not have mortgages
  
• 80%:  Percentage of people who get a mortgage when buying a home
• 7.7% ($80 billion):  The forecasted growth in residential mortgage credit for 2012, according to report author Will Dunning. (For 2012, the expected growth is 7.3%.)

Debt

• 7.98 out of 10:  Rating given by respondents to the statement: “As a whole, Canadians have too much debt”
• $1.079 trillion:  Value of outstanding Canadian residential mortgages

Renewals & Refinancing

• 32%:  Percentage of home owners with mortgages who had some form of mortgaging activity in the past year
  • 9% (525,000) took out a new mortgage
    • $216,000:  Their average mortgage principal
  • 23% (1.35 million) renewed or renegotiated
    • $157,000:  Their average mortgage principal
  • 1.9 million either took out a new mortgage, renewed or refinanced
    • $326 billion:  Total mortgage volume from the last 12 months
• Of those who renewed or refinanced:
  • 21% changed lenders
    [This is one of the more surprising stats to us. It’s up from 12% two years ago. That flies in the face of lenders who have invested millions to improve client retention. It also reduces, albeit slightly, the benefit of trailer fees, which are sometimes paid to brokers when a broker-originated client renews with their existing lender.]
  • 79% stayed with the same lender
• 7.28 out of 10:  Respondents’ average rating of the statement: “How likely are you to place your mortgage through the same lender?”
  [This data point was not published in the report but was part of the survey. People are obviously inclined to stay with their existing lender, largely out of comfort and convenience of not having to re-apply elsewhere. Research shows that people who stay with their existing lender often, but not always, pay higher mortgage rates.]

Early Renewal Penalties

• 15% (850,000):  Percentage of the 5.8 million home owners who refinanced early (before maturity)
  • 53% paid no penalties due to renewing with the same lender
    [Note: People don’t always pay a penalty out of pocket. This 53% likely includes renegotiated mortgages with blended rates, which often have the penalty built in.]
  • 9% paid penalties of less than $1,000
  • 14% paid a penalty of between $1,000 to $2,499
  • 6% paid a penalty of $2,500 to $4,999
  • 18% paid a penalty of $5,000 or more
    [A big penalty doesn’t automatically mean you shouldn’t refinance. Your broker or lender rep can easily do a breakeven analysis. That quickly confirms the economic benefit or cost of breaking your existing mortgage.]
• 500,000:  Number of mortgages renewed on schedule (over the past 12 months)
  [If you’re coming up for renewal, start your mortgage hunt a minimum of 120 days before closing…and get a rate hold to protect yourself.]

Mortgage Type

• 60%:  Percentage of mortgage holders with a fixed rate mortgage
  • 72% of which have always had a fixed rate
  • 28% had a variable at some point
    • Half of this 28%, or roughly 450,000 households, switched from variable to fixed within the last 12 months
• 31%:  Percentage of mortgage holders with variable or adjustable rate mortgages
  • 33% say their mortgage was always variable/adjustable
  • The remaining two thirds have switched from fixed rates. Of those:
    • 22% (or 400,000 households) made that switch within the past year
    • 45% switched more than a year ago

[Within the past year specifically, 37% of borrowers took variable rate mortgages. CAAMP attributes this increase in variable popularity to:

1. The near-2% spread between fixed and variable rates over the last year
2. The expectation that rates will stay low.
3. The concept of “mortgage lifecycles” (i.e., Young homeowners are more likely to choose fixed rates. As they age and are in a better financial position, they opt for lower rates over security.
   
   Despite the above, we’ve see a huge shift back to fixed rates as of late. That’s due largely to lenders slashing variable-rate discounts.]

• 8%:  Percentage with “combination” mortgages (i.e. part variable and part fixed…aka., hybrid mortgages)
  [People just aren’t biting on hybrids, despite the advertised benefit of diversifying one’s interest rate exposure.] 

Amortizations

• 22%:  Percentage of Canadian mortgages with amortizations over 25 years
  • Two years ago, 18% had amortizations over 25 years
  • Three years ago, 16% had amortizations over 25 years
    [As home prices rise, so has demand for the greater affordability of long-term amortizations.]
• 41%:  Percentage of homeowners who purchased in 2011 and chose an amortization period longer than 25 years
• 90%:  Number of mortgage holders who expect to “considerably shorten their amortization period”
• 8%:  Number of mortgage holders who expect to lengthen their amortization

Interest Rates

• 3.92%: Average interest rate paid by mortgage holders
  • Down from 4.22% a year ago
• 1.46: The estimated average discount rate off posted 5-year fixed rates (in percentage points)

Affordability

• $750:  The average increase in monthly mortgage payments that would cause mortgage holders to become “concerned” with their ability to continue making payments
  [CAAMP states that the figures are comparable when you look at people who got mortgages in the last 12 months. That is reassuring. Mind you, many of these people are long-time mortgage holders who have small mortgages and small mortgage payments, and can thus handle a big increase.]
• 12% would have difficulty with a rate increase of less than 1%
  [This amounts to 650,000 people. CAAMP says most of these homeowners have fixed rate mortgages, which provide them with ample time before renewal to build more equity and improve their financial capacity. 88% of these borrowers have 10% or more equity in their homes.]
• 3%:  Percentage who say they have no room for an increase in monthly payments
• 8%:  Percentage who would have difficulty with a monthly payment increase of $100 or more
  [This drops to 5% for those who originated a mortgage within the past year]
• 75,000:  The number of borrowers who would be adversely impacted by interest rate hikes in the short-term and have limited equity in their homes
  [This segment amounts to less than 2% of Canadian mortgage holders, says CAAMP.]

Home Equity

• Of home owners with mortgages and/or lines of credit:

• 2%:  May have negative equity
• 4%:  Have equity of less than 10%
• 16%:  Have equity of 10%-24.9%
• 78%:  Have 25% equity or more

• 10%:  The number of mortgage holders who took out equity from their home within the past year
  [This compares to 18% last year, quite a drop.]
  • $49,000: The average amount of equity withdrawal
  • $28.5 billion: Collective value of equity take-outs
    • $11 billion:  Amount used for debt consolidation and repayment (62% of borrowers who refinanced cited this as a purpose)
    • $5 billion:  Amount used for home renovations (40% of borrowers who refinanced)
    • $6 billion:  Amount used for education and other spending (22% of borrowers who refinanced)
    • $3.5 billion:  Amount used for investments (8% of borrowers who refinanced)
    • $3 billion:  Amount used for “other” purposes (6% of borrowers who refinanced)

[Some respondents indicated more than one use for their refi money, hence the fact the responses surpass 100%.] 

Equity

• Breakdown of equity for each category of homeowner:
  • 42%:  Percentage equity for those with mortgages and HELOCs
  • 51%:  Percentage equity for those with mortgages only
  • 81%:  Percentage equity for those with HELOCs only
    [The average value of their HELOCs was $60,000]
  • 100%:  Percentage equity for those with neither mortgages nor HELOCs

Professionals Consulted when Obtaining Current Mortgages

• In the last 12 months:
  • 55%:  obtained their mortgage from a bank (unchanged from last year)
    [For renewals and refis, 67% used a bank. That’s up conspicuously from 57% last year.]
  • 27%:  obtained their mortgage from a mortgage broker (vs. 25% in last year’s report)[At first glance, this seems like a somewhat pleasant surprise. Many expected overall broker share to drop with banks getting more competitive. When you look a little deeper, the picture isn’t so rosy.

    Broker share of new mortgages skid from 40% to 32% in the last year. Broker share of renewals & refis fell from 23% to 19%. Will Dunning tells us the discrepancy (i.e. falling new, renewal and refi share but higher overall share) “is due to a shift in the sample composition. This year, a higher percentage of mortgages were new initiations.”

    Still, there are recent reports of market share being closer to 22%. Given this and the normal statistical margin of error, we’d be hesitant to celebrate the “small shift” towards brokers that’s been reported elsewhere.]

  • 18%:  obtained their mortgage from other sources (credit unions, etc.)

Supplemental Payments

• 36%:  Percentage of mortgage holders who made voluntary supplemental payments towards their mortgages during the past year (This amounts to roughly 2.1 million people, says CAAMP.)
  • 16% (~900,000 people):  increased their monthly payments
  • 17% (nearly 1 million people):  made lump sum prepayments
    [Some people get overly hung up on prepayment privileges when shopping for a mortgage. There are times when flexibility pays off in this area—like when you have a cash windfall or break your mortgage early and want to prepay to reduce the penalty. Generally, however, large prepayment privileges are underused and can be traded off for a better rate (where possible and circumstance permitting).]
  • 5% (325,000 people):  increased the frequency of their payments
  • 6%: used more than one of the above options

• 24%: Percentage of borrowers who voluntarily increased payments after getting a lower rate at renewal
  [Hopefully the other 76% put their payment savings to good use, but many probably did not.]

Study details

The data quoted from this report was commissioned by CAAMP and produced by Will Dunning, Chief economist of CAAMP, in collaboration with Maritz. This report is based on online survey responses from 2,000 Canadians compiled between October 20 and 25, 2011.

Rob McLister, CMT

Last modified: April 26, 2017