CAAMP’s Spring Mortgage Report 2012

CAAMP-Spring-SurveyFor mortgage and real estate buffs, CAAMP’s semi-annual reports are among the best of the best sources of market stats.

This year’s survey seemed to have more data than ever, including insights on the:

  • speed at which borrowers prepay their mortgages
  • potential effects of a 10% minimum down payment
  • market share of brokers (which is up)
  • ratio of people who miss payments.

As usual, we’ve distilled the data down to bite-sized nuggets. If you’re pressed for time, stats of special importance are highlighted.

If you want to read the report with full context, here is the link: Spring Mortgage Report. A summary follows below (our comments in italics):

Real Estate Market

  • Total value of owner-occupied housing in Canada: $3.48 trillion
  • Households in Canada:  13.7+ million

    • Homeowner households:  9.85 million
    • Renters: 4.1 million

Canadian-Housing-StatisticsMacro Mortgage Stats

  • Outstanding mortgage principal: $1.15 trillion
  • Homeowner households without mortgages: 3.75 million
  • Households with mortgages: 5.85 million
  • Average mortgage principal outstanding: $170,000
  • Mortgages for purchases in 2011:  $138 billion
  • Total home purchases in 2011:  750,000
  • Purchasers who sold an existing home: 275,000 to 300,000
    (Of those, 175,000 to 200,000 had existing mortgages)
  • Purchasers getting a mortgage in 2011:  600,000 to 625,000 households
    (This includes new mortgages, ports and assumptions)
  • Average mortgage amount on purchases: $224,000
  • Purchases not needing a mortgage: 150,000
  • Homeowners paying off their mortgages in 2011:  200,000
  • 2011 renewals and refinances: 575,000 to 600,000
    (The average principal: $139,000)
  • Mortgage credit growth in 2011:  $62 billion
    (This represents owner-occupied principal residences. It’s $77 billion if you use the BoC’s estimate, which includes investment properties, second properties, and vacant dwellings.)

HELOCs

  • Households with both mortgages and HELOCs: 2 million
    (Average HELOC size:  $58,600)
  • Households with a HELOC but no mortgage:  625,000
    (Average HELOC size:  $70,700)

Equity-of-HomeownersEquity

  • Average equity for homeowners with mortgages but no HELOC: 49%
  • Average equity for homeowners with both mortgages and a HELOC: 41%
  • Average equity for homeowners with a HELOC but no mortgage: 82%
    (Some people keep HELOCs as a backup, and rarely use them.)
  • Homeowners with less than 10% equity:  5%  
    (Among homeowners with mortgages, the number is 9%. This can change quickly, of course, depending on home price movements.)
  • Homeowners with 25% or more equity: 83%

Equity Take-Out

  • % of mortgage holders taking out equity in the past year: 18%
  • Average equity take-out: $43,500
  • Total equity take-outs through mortgages:  $29 billion
  • Total equity take-outs through HELOCs:  $16 billion
  • Top uses of equity take-out funds:
    • Renovation:  $17.25 billion
    • Investments:  $10 billion
    • Debt consolidation:  $9.25 billion
    • Purchases, including education:  $7.5 billion
    • “Other” purposes:  $2 billion

Rates

  • Average 5-year fixed discount (2011 to present): 177 bps off posted rates
  • % of borrowers paying rates over 8%:  Less than 1%

Fixed-Variable-MortgagesRate Choices

  • % of mortgagors with fixed rates: 65%
  • % of mortgagors with variable or adjustable rates: 29%
  • % of mortgagors with “combination” mortgages: 7%
    (Also called hybrid mortgages, these are part fixed and part variable)
  • % of recent renewers who switched from fixed to variable:  12%
  • % of recent renewers who did not change their mortgage rate type: 71%
  • % of the 3.8 million fixed-rate households who locked in during the past 12 months: 14%
    (This is slightly over 500,000 people, says Dunning. One-third [~175,000] purchased their homes recently—during 2008 to 2010. Dunning says this “supports comments by lenders that they have high numbers of new borrowers who start with variable rate mortgages but soon opt for the security of fixed rates.”) 
  • % of the 3.8 million fixed-rate households who locked in more than a year ago: 11%
    (~425,000 people)
  • # of variable rate holders who are unaware that they have the option to lock in: 100,000
    (To some degree, this is a dereliction of responsibily by their lender or mortgage adviser.)

Amortization

  • % of mortgagors with amortization periods over 25 years:  25%
  • % of mortgages closed during 2011 to the present with amortization periods over 25 years:  40%
  • Average original amortization period of homes that were paid off between 2008-2012:  18.4 years
    (The actual amortization period was significantly less: 11.3 years)
  • Average amortization period of homes purchased between 2008 and 2012:  24.1 years
    (The current expected amortization period is less: 19.3 years on average. It’s clearly taking longer to pay off pricier homes. Nonetheless, this shows again that initial amortization and actual amortization are two different things.)
  • Average expected amortization of homes purchased during 2008 to present:  22.8 years
    (This is considerably shorter than the original amortization, which averaged 31.9 years. It amounts to about 30% of the original contracted period, says Dunning. Longer amortizations provide “flexibility to manage future uncertainties,” he adds, noting that “data on debt service ratios supports this interpretation.”)
  • Actual amortization as a ratio of original amortization (for homes paid off since 1990):  two-thirds

Pre-paying-your-mortgageAccelerated and Lump-sum Prepayments

  • Mortgage principal repayment (via regular payments) in 2011:  $55 billion
  • Lump-sum prepayments in 2011:  $14 billion 
    (This doesn’t include cases where the full mortgage was paid off. Prepayments done to fully repay mortgages totalled $4 billion in 2011. Homeowners with non-extended amortization periods [i.e. 25 years or less] are slightly more likely to increase their regular payments or make lump sum payments.)
  • % of mortgage holders who:
    • increased their monthly payments during the past year:  23%
    • increased their monthly payments in prior years:  17%
    • have never increased their monthly payments:  60%
    • have made a lump sum contribution to their mortgage in the past year:  19%
    • made lump sum payments in prior years (but not in the past year): 14%
    • have never made lump sum payments:  67%
    • made lump-sum prepayments and increased their payment (during the past year):  10%
    • have never made any prepayments or payment increases:  50%
  • Average amount of regular payment increase: $400 to $450 per month 
    (This applies to those who voluntarily increased their payments during the past year)
  • # of mortgagors who have voluntarily increased their payments in the past year: 1.35 million
  • Average lump sum prepayment: ~$12,500
    (Not all mortgage holders made a prepayment. This $12,500 average is reflective of only people who made a prepayment. It represents the average total lump-sum prepayment made in 2011, even if a borrower made prepayments in multiple installments during the year. This $12,500 figure only applies to people who still had a mortgage when surveyed. In other words, it doesn’t include people who made lump sums to prepay their mortgage right before discharging/switching their mortgage.
  • Average extra payments made by mortgagors who purchased recently: ~$250 per month, or $3,000 per year
    (This includes ongoing regular payment increases and accelerated payments, only. It does not include lump-sum prepayments.)

Use of Mortgage Representatives

  • Ratio of new mortgages in 2011 closed by banks: 50%
    (Up one percentage point from last year)
  • Ratio of new mortgages in 2011 closed by brokers: 31% 
    (Up four percentage points from last year)
  • Among consumers who took on a new mortgage in 2011:
    • 50% consulted a mortgage representative from a Canadian bank
    • 31% consulted a mortgage broker
    • 12% consulted a mortgage representative from a credit union
    • 5% consulted a mortgage representative from a life insurance or trust company
    • 2% consulted someone else
  • % of consumers who renewed a mortgage through a broker in 2011: 22%
    (As has long been the case, the majority of renewers renew through their lender.)
  • % of customers renewing in 2011/12 that switched lenders:  22%
  • % of customers renewing in 2011/12 that renewed early (before maturity):  46%

Down-PaymentRenters and Down Payments

  • Reasons that tenants gave for opting to rent as opposed to owning:
    • 52% said they have not yet saved the money needed to purchase a home
    • 33% said the cost of homeownership is prohibitive
  • % of renters with $30,000+ available for a down payment:  11%
  • Average funds that renters have available for a down payment: $21,000
  • Among mortgage holders who purchased their homes recently (2007 to the present), if it had it been mandatory to put 10% down to secure a mortgage:
    • 40% said they would have been able to make their purchase
    • 45% stated they would be unable to make the purchase
    • 14% were unsure(Dunning estimates that home purchases would drop 100,000 per year if the minimum down payment were 10% instead of 5%. He says that would trigger “less job creation…slower growth of house prices [in fact, prices might fall], reduced consumer confidence..and tighter rental markets with more rapid rates of rent increase.”)

Forecasts

(These are from 3rd parties, as quoted by CAAMP.)

  • 2012 resale activity:  $168 billion 
    (vs. $166 billion in 2011)
  • 2012 mortgage credit:   $95 billion 
    (up 8.5% versus 2011. The 10-year average growth rate is 9.1%. The primary cause of mortgage growth is completions of new housing, says Dunning.)

Miscellaneous

  • % of borrowers missing one or more payments that they were allowed to miss: 10%
  • % of borrowers missing one or more payments that they were not allowed to miss: 6%
    (This rises to 8% for borrower purchasing between 2007 and 2012. The survey did not distinguish between being late, and not missing a payment altogether.)
  • Employment effect of each new single family home built and sold:  2 person years of employment

More on the Survey:  This report was prepared by Will Dunning, Chief Economist of CAAMP, and were based on a survey of 2,000 Canadians. The survey was conducted by Maritz Research Canada between April and May 2012. Forty percent (800 Canadians) were homeowners with mortgages.

This year’s survey took tremendous effort—more so than usual because it had more statistics. Our compliments to Will Dunning and Maritz for continuing to collect and intepret such essential data.


Rob McLister, CMT

  1. Outstanding data and information. Great work once again Rob!
    It is clear from the CAAMP data that homeowners in Canada are diligent, industrious and conscientious.
    One has to wonder why OSFI is looking to put a damper on a real estate market that is most definitely not out of control.

  2. It is clear from the CAAMP data that homeowners in Canada are diligent, industrious and conscientious.
    Absolutely! Only 8%* of new homeowners blew off a mortgage payment in their first five years.
    We’re not like the feckless Irish, the lazy Americans, the spendthrift Japanese, or even our cavalier parents!
    OSFI is looking to protect the banks from themselves.
    * +/- 3.5% with 95% confidence. N.B. Self-Reported Data!

  3. Time to stop living in fear Ralphy Boy.
    It seems that you are in search of a Utopian existence where all risk has been expunged from the planet, where everyone pays their bills on time and never misses a payment.
    Only then will it be safe to buy a home. Yikes!

  4. It’s hard to believe you could read me that wrong after all we’ve been through together, Appraiser.
    I buy unloved asset classes and stay away from the ones which are, by consensus, a winning proposition. Right now everybody’s crowded into government bonds, real estate and cash, so I’m elsewhere. If I felt like being a long distance landlord, I’d be in real estate right now — in select cities in the US. The converse of nobody wanting to take on any (perceived) risk is that some risks are paying very well right now.

  5. Excellent artical which I am sure I will refer back to repeatedly. As a newby to this industry with eyes wide open and an overly sunny attitude, I am just a little surprised that approximately 50% of all homeowners have never made an attempt to either increase the payment or put a lump sum on when I am sure they are down at Tim Hortons or have some other habbit which is much more of a waste of money, but that is just my diligent, goal oriented nature. Eager Beaver MA

  6. It’s amusing how some people focus solely on the negative. What about the 92% who never miss a payment? What about the average debt ratio of 30-35%? What about the 83% of people who have greater than 25% equity?
    If you want to focus only on the bad, then what do you know about that 8% Cramdown? Most could be subprime homeowners for all you know. They could be people who were 4-5 days late for some innocent reason. Don’t be so one-sided in your judgements.

  7. So, 45% of 2007-2011 buyers say that they could not have put 10% down, and 40% of 2011 mortgagers could not afford (or chose not to afford) an amortization of 25 years or less — and that includes move-up buyers that apparently have all of this equity sitting there.
    Put these together, and it seems that the most popular mortgage structure was probably a 5% down / 30-yr amortization? Are there any stats on that?

  8. I don’t know much about the 8%*, save that many of them must have been under a lot of stress, either briefly or not. Also, I know that behind them is a cohort that managed to make all their payments on time, but only by taking a third job, downsizing the car, borrowing from family, friends or at high interest — more stress. That’s the flip side of the truism that the mortgage generally gets paid if there’s any way the borrower can manage it.
    I see lots of positive things about real estate, at the right price. I don’t feel the need to stress them because the last thing Canada needs right now is another real estate cheerleader. We’re in surplus on that account.
    * – I miscalculated the error bars in an earlier post. They were for questions pertaining to all mortgage givers. The bars would be wider for only those who bought in the last 5 years.

  9. 1200 billion total in mortgage debt
    55 billion in principal was paid as part of regular payments
    49 billion in equity take out (29 in refi and 26 in HELOC)
    If it weren’t for another 18 billion in lump sum and pre-payments, progress against existing mortgage debt would have been negligible.

  10. I too find this surprising — and these numbers apparently cover all buyers (not just first-timers) as far as I can tell.

  11. I have very little faith in our ability to interpret the choice of amm. based on these data.
    When we got our mortgage in 2008, we took a 40 year amm, but set the payments at 25 years. The lender (major bank) at that time told us that they were, essentially, registering ALL mortgages at 40 years and just setting the payments at whatever amm. people actually wanted.
    Their reasoning: in many instances clients had applied for shorter amms and been rejected, after which they simply turned around and applied for the longer amm. To save everyone time and money, they just registered everything as long.
    Again, this is why I have no faith in the length of amms. as a reflection of *ability* to pay. I suspect that few people with 40 year (or 35 now) actually take that long to pay it off.

  12. Gosh, Eager Beaver, it is sure nice that we have diligent goal oriented people like you to tell us what we should spend our disposable income on and which hobbies we should and should not adopt. I don’t know how I’ve managed to enjoy life before meeting you.
    Do you actually have any information on that 50% who has “never made an attempt to either increase the payment or put a lump sum on”? Are you *really* sure they are just throwing money away on morally depraved ‘habbits’ like drinking coffee, or is it possible they are actually *more* responsible than the lump-sum types? Could it be, in fact, that they have already “built it” extra payments by setting themselves higher monthly payments, choosing bi-weekly payment schedule, or setting a shorter amm. period than the other 50% who initially set themselves lower monthly payments and longer amms. and then, once in a while, put down a lump sum. If you were truly diligent and goal-oriented, I suspect you would favour the higher regular payments than the occasional lump sum.
    Or — and I know this must be somewhat shocking to someone as eager as you — could it be that they have made a calculated decision that they actually *like* drinking Tim Hortons coffee and are willing to sacrifice a little bit of disposable income now, knowing that they might have to make a year or two more mortgage payments. That, perhaps, for some people, putting every red cent into a mortgage doesn’t actually make their lives better? I know, I know, crazy talk.
    But I’m with you. I refuse to spend money on ‘extras’ like toilet paper so that I can prepay just that much extra every month on my mortgage. How do I do it? It is easy once you learn to time your emissions until you are at work. Nothing worse than developing a habit of literally flushing money down the toilet.

  13. What about the 92% who never miss a payment?
    What about them? Those people have exactly zero effect on the market. The only people that matter are those that are buying or selling.

  14. Most of the people with low down payments are first time buyers. The average down payment on a purchase is 30%.
    As for amortizations, most people can afford 25 year amortizations but choose 30 years for cash flow flexibility.

  15. Don’t forget that our population keeps growing which makes mortgage debt grow. It’s been that way for years and unless home prices drop, you almost never see mortgage credit drop.

  16. Seriously, you need a new hobby besides crystal balling government bond rates every day. Maybe GCAN5yr. bonds do indeed go to 1%, but maybe and more likely, they don’t! Bond traders don’t know and neither do you or I.
    History proves time and time again, The Queen’s bank and government fiscal policy can only influence the markets so far.

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