CAAMP’s Spring Mortgage Report 2013

CAAMP Spring Report 2013Every six months, CAAMP's mortgage market survey provides a pulse on mortgage activity. The theme of its latest report is balance. In other words, the report aims to establish the need for balancing two risks:

(a) the risk that Canadian housing overheats (which is being mitigated by tighter mortgage policies), and

(b) the risk of economic damage caused by a policy-driven housing slowdown. 

"At this point, it's important to support the economic contribution that housing makes, instead of further restricting it," CAAMP president Jim Murphy said in an interview today. "The market was already slowing when the last set
of rule changes were implemented. Now the market has slowed further and we feel the changes put in place have gone far enough."

Apart from commentary on mortgage policy, report author Will Dunning shares a host of other intriguing findings. There's new data on mortgage rates, refinancing, amortization length and more. Key points are highlighted below in green, with our comments in italics

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Mortgage rate discounting

Among those who initiated, renewed, or refinanced a mortgage since the beginning of 2012, and chose 5-year fixed rates:

  • The average mortgage interest rate: 3.05%
  • The highest rate recorded in the survey: 3.75%
    (Dunning says that every mortgage in this dataset had an actual interest rate that was lower than the average posted rate. This counters those who claim that banks still routinely stick people with posted rates.
  • The average discount was: 2.20 percentage points off the “posted” rate
    (That would be equivalent to 2.94% today.)

General mortgage rates:

  • The average homeowners' mortgage rate: 3.52%
    (The average will continue to drop in the next year as people renew and refinance.)
  • The average rate for mortgages…
  • on homes purchased in 2012 and 2013: 3.22%
  • that were recently renewed: 3.15%
    (It seems odd that interest rates are lower on renewals than purchases. Past studies have shown that lenders often exploit renewers' resistance to change and stick them with less competitive rates.)

Rate type

For homes bought from 2012 to present…

  • % of new mortgagors with fixed rates: 85%
  • % of new mortgagors with variable or adjustable rates: 13%
  • % of mortgagors with “combination” mortgages: 3% 
    (Also called hybrid mortgages, these are typically mortgages that are part fixed and part variable)

Repayment and lump sum payments

  • % of mortgage holders who voluntarily increased their regular payments during the past year: 18%
    (The number of mortgagors who prepay is notably higher if you measure over a five-year span.)
  • The average amount of increase: $300 per month
  • % who made lump sum payments during the past year: 16%
  • The average total lump sum payment amount: $10,000

(By comparison, a just-released CGA-Canada survey finds that "21% of mortgage holders increased the amount of mortgage payments or made lump sum contributions to pay off mortgage faster over the past year.")  

Amortizations

  • % of the original amortization time that was required to repay a mortgage (over the past two decades): 2/3 of the contracted period
    (This is thanks in large part to prepayments, as referenced above.
  • Amount of time that recent buyers expect to take to repay their mortgages: just under 20 years (the same time period as their parents’ generation)
  • % of mortgages on 2012/13 purchases that had extended amortizations: 25%
  • % of all mortgages with contracted amortizations of no more than 25 years: 80% 

Home equity

  • Average homeowner equity in Canada:  67%
  • The equity ratio for owners with both
    mortgages and HELOCs: 49%
  • The
    equity ratio for owners without mortgages but with HELOCs: 79%
  • Percentage
    of homeowners in Canada who have 25%
    or more equity in their
    homes: 83% 
    (about 8 million out of 9.65 million households)
  • % of homeowners who have less than 10% equity: 4%
  • % of mortgagors (with or without a HELOC) who have less than 10% equity: 7% 
    (That's about 400,000 households. A serious housing downturn would obviously inflate this number.)
  • Among homeowners who have mortgages (with or without a HELOC), the percentage who have equity ratios of 25% or higher: 73%

Equity take-outs

  • % of homeowners who took
    equity out of their home in the past year: about 8%
  • The average amount of equity
    take-out: $48,000
  • The most common uses for the
    funds from equity take-out:

    1. Renovation: $17.5 billion
    2. Purchases (including
      education): $8.6 billion
    3. Investments: $5.6 billion
    4. Debt consolidation and
      repayment: $4.7 billion
    5. Other: $2.5
      billion

Housing market

  • # of households in Canada: 13.7 million
  • # of renters: 4.05 million
  • # of homeowners in Canada: 9.65 million
  • # of homeowners who are mortgage-free: 3.70 million
  • # of homeowners who have mortgages (they may also have a Home Equity Line of Credit): 5.95 million
  • # of Canadian homeowners who have HELOCs: 2.35 million
  • # of households that bought homes in 2012: 600,000
  • Among the 600,000 households who bought homes, number who sold an existing home: about 225,000 to 250,000 
    (Of those, the number that had existing mortgages: 175,000 to 200,000)

Mortgage market activity

  • Mortgages for purchases: $110 billion
  • Principal repayment via regular payments: $60 billion
  • Lump sum payments by mortgage holders
    • Where the mortgage was not fully repaid: $10 billion
    • Where the mortgage was fully repaid: $3 billion
  • # of 2012 homebuyers who took out a mortgage: 450,000 
  • # of homeowners with mortgages who renewed or refinanced a mortgage in 2012: 800,000
  • Number of Canadian homeowners who fully repaid their mortgages in 2012: 200,000

Mortgage credit growth

  • CAAMP's growth rate forecast for
    2014: Between 2.5% and 3.0%
    (The last such analyst forecast we saw came from RBC Capital Markets. It estimated 2.0 to 4.0% mortgage growth.)
  • The outstanding total of
    residential mortgage credit: $1.16 trillion at the end of 2012
  • CAAMP's year-end 2013 forecast for residential mortgage credit: $1.21 to $1.22 trillion

Types of mortgage representatives consulted

For all current mortgages (regardless of
when they were obtained), the percentage that were obtained from:

  • a bank: 57%
  • a mortgage broker: 25%
  • a credit union: 10%

Among borrowers who took out a new mortgage in 2012 or 2013 (through April), those who obtained their mortgage:

  • from a Canadian bank: 51%
  • from a mortgage broker: 31%

For mortgages that were renewed in 2012/13:

  • Those who renewed with their existing lender: 86%
    (That's up from 78% in last year's report. It's no surprise that lenders are working harder to retain customers as mortgage volume slows.)
  • Those who used a mortgage broker: 21%

Credit cards

  • Average outstanding credit card balance: $3,500
  • Average outstanding credit card
    balance for those who generally carry a balance: $6,500

Economic impact

The following are CAAMP estimates on the economic impact of home building and stricter mortgage rules:

  • Drop in resale activity following the latest July 2012 insured mortgage restrictions:  9%
    (Jim Murphy notes that volume in this year's spring market—typically prime time in the housing market—has been disappointing. He adds, "Lenders have
    called me to say the same thing: Spring market? What spring market?"
  • Drop in seasonally adjusted housing starts this past April:  15%
  • Number
    of “person-years” of employment created by each low-rise dwelling constructed: 1.75
  • Number
    of “person-years” of employment created by each apartment constructed: 1.25
  • Estimated number of net jobs lost by mid-2015, due to tighter mortgage guidelines: ~150,000
    (In other words, CAAMP believes mortgage regulations will reduce the level of jobs by 150,000 two years from now. This figure is revised from CAAMP's earlier estimates.)

Renting

  • # of households who are renters: 4.05 million
  • Rental vacancy rate in Canada, as of October 2012:
    2.6%
    (That's identical to the average of the past 40 years, but some cities have become far tighter than others. CAAMP notes that "a consequence of the housing
    market downturn is that rental market vacancy rates will fall." It
    adds: "vacancy rates that are lower than they need to be will result
    in rent increases that are more rapid than they need to be, and greater
    hardship for tenants."
    )

Survey Details: CAAMP notes that: "Data used in this report was obtained from various sources, including an online survey of 2,000 Canadians. Almost 60% were homeowners with mortgages and the rest were renters, homeowners without mortgages, or others who live with their families and are not responsible for mortgage payments or rents. The survey was conducted by Maritz (a national public opinion and market research firm) for CAAMP, during April 2013."


Rob McLister, CMT

  1. So let me get this straight. Average rates are 3.05% and Flaherty makes a big stink about banks promoting 2.99%? Preposterous.

  2. The conclusion that I come to after reading this CAAMP report is that the financial state of Canadian real estate is extremely healthy but that a rule change to decrease amortization from 30 to 25 years (comparable to an interest rates increase of approximately 1%) will cause significant impacts to housing activity and the economy.

  3. Its time people stop crying about 25 year max amortizations.
    Guys, this is 25 years … for some is half their life, for others – more than what they have left to live.
    The solution for home buyers will be to remove banks from the picture and BoC to give mortgages directly – BoC Prime (now 1%) interest rate for the primary residence.
    Then 25 years will get most working people on an average salary qualified.
    Think about it :)

  4. “Its time people stop crying about 25 year max amortizations.”
    Easy for you to say. You probably rent or have nothing better to do with your money than pay your mortgage.

  5. The mentality about life on credit better start to disappear.
    Credit has caused the world’s crisis, wake up.

  6. Raising rates is the last thing they will do anytime soon, unless a huge inflation appears, and even then … I doubt it will be that much of an increase.

  7. How healthy is real estate if an increase of 1% will cause significant impacts to housing activity and the economy?

  8. Excellent report Rob. Always nice to get great stats from a very reliable source.
    The numbers are incredible. Despite all the doomers out there, the mere fact that a majority of homeowners’ finances are cycling cheaper year after year, illustrates how remarkably stable and resilient the property market really is.
    P.S. Pay no attention to Rabidoux. He believes CMHC is the devil incarnate.

  9. With regards to the new rule changes and what’s being proposed I think I have to say I understand both sides. While I am a firm believer that consumers shouldn’t lose access to cheaper capital. I wish the government would look at the real problem. Consumer Credit is the largest facilitator of debt.. It is easy to obtain and can get out of control quickly. That’s why as a mortgage agent I help show my value to my clients with a cost effective online debt elimination solution called InterestBLOCKER. It’s easy to use and keeps me top of mind with all their financial requirements.

  10. Why is CAAMP concerned with the changes made in July of last year if the personal finances of a majority of homeowners are in such good shape?

  11. I can’t believe how many people are locking in today. How low will variable rates have to go before people get interested in them again?

  12. Thanks Appraiser. Regarding the latter point, when someone goes on national TV and furthers misconceptions (like claims that insurers don’t audit their lenders), we can’t contain ourselves. :)

  13. Credit has never caused a single crisis anywhere. That is like blaming airplanes for the World Trade Centre collapse. It is the improper management of credit that causes problems.

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