Every six months, CAAMP’s mortgage market survey gives us a pulse on mortgage activity. The theme of its latest report is understanding the “new normal” in the mortgage market.

Here’s one of the report’s key assertions:

“The (mortgage rule) changes made in 2012 were inappropriate: there was an issue of inadequate housing supply in a few communities that was resulting in excessive price growth in those communities. But, the policy response to these localized supply issues was to depress housing demand, which applies (unnecessarily) to all areas of Canada…“

CAAMP’s chief economist and report author Will Dunning suggests more focus should be placed on rectifying the “insufficient supply” in pricey housing markets, rather than impeding demand and economic growth through additional mortgage regulation.

Apart from commentary on mortgage policy, Dunning shares his usual array of 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 rates

• For 5-year fixed rates obtained from the beginning of 2013 to present, the average discount was: 1.95 percentage points off the “posted” rate
• The average homeowner’s mortgage rate: 3.24% (vs. 3.52% in the previous survey)
  
• The average rate for mortgages that were recently renewed: 3.02% (vs. 3.15% in the previous survey)
• Percentage of mortgages that have interest rates of 5% or more: 4%

 

Rate type

For homes bought from 2013 to present:

• % of new mortgagors with fixed rates: 74% (vs. 85% in the previous survey)
  (Barring financial crisis, we’ll likely see variable rates of 2.19% or less in the not too distant future. If more Canadians start believing that low rates may last indefinitely, variable-rate uptake may increase, despite the smaller-than-normal spread between 5-year fixed and variable rates.)
  
• % of new mortgagors with variable or adjustable rates: 20% (vs. 13% in the previous survey)
• % of mortgagors with “combination” mortgages: 6% (vs. 3% in the previous survey)
  (Also called hybrid mortgages, these are typically mortgages that are part fixed and part variable.)

 

Repayment and lump sum payments (for all purchase periods):

• % of borrowers who increased their payment: 16% (900,000 mortgage holders)
  • Average amount of increase: $375 per month
    
• % who made a lump sum prepayment: 14% (800,000 mortgage holders, totalling $8 billion)
  
  • Average amount of payment: $10,000
• % who increased their payment frequency: 7%
  
• % who took none of these actions: 65%
  (Yet, most homeowners still ask for large prepayment privileges.)
  

 

Amortizations:

• On homes purchased from 2013 to present, percentage who have extended amortizations (> 25 years): 8%
  
• Among recent borrowers (for purchases from 2009 to 2014), the number of years earlier that borrowers expect to pay off their mortgage, versus their contracted amortization: ~4 years

 

Home equity:

• Average homeowner equity in Canada: 73% (vs 67% in the previous survey)
  
• The equity ratio for owners with mortgages but not a HELOC: 51%
• The equity ratio for owners with mortgages and HELOCs: 54%
• The equity ratio for owners without mortgages but with HELOCs: 81%
• Percentage of those with mortgages who have 25% or more equity in their homes: ~70%
  (By contrast, roughly 2 in 3 CMHC-insured [“transactional”] mortgages in Q1 had less than 10% equity.)
  

 

Equity take-outs:

• Percentage of homeowners who took equity out of their home in the past year: 11%
• The average amount of equity take-out: $51,000 (vs. $48,000 in the previous survey)
• The most common uses for the funds from equity take-out:
  • Debt consolidation and repayment: $16.9 billion (32%)
  • Renovation: $13.4 billion (25%)
  • Investments: $12.5 billion (24%)
  • Purchases (including education): $6.6 billion (12%)
  • Other: $3.3 billion (6%)

 

Housing market:

• # of homeowners in Canada: 9.55 million
• # of renters: 4.3 million (vs. 4.05 million in the previous survey)
  
• # of homeowners who are mortgage-free: 3.96 million (vs. 3.70 million in the previous survey)
  
• # of homeowners who have mortgages (they may also have a Home Equity Line of Credit): 5.6 million
• # of Canadian homeowners who have HELOCs: 2.2 million

Mortgage market activity:

• # of Canadian households that bought homes in 2013: 625,000 to 650,000
• # of homebuyers who took out a mortgage: 575,000 
  • Of these, the number who also took out a HELOC: 125,000
• # that took out no financing on the property: 50,000
• Percentage of buyers who sold another home at the same time: 34% (225,000)
  • Of these, percentage that still owed money on that home: 40% (75,000 to 100,000)
• # of homeowners with mortgages who renewed or refinanced a mortgage in 2013: 1.5 million (vs.  800,000 in 2012, according to the previous spring survey. We asked Dunning and he couldn’t explain this 700,000 difference between 2012 and 2013.)
  
  • Combined total principal: $242 billion
  • Percentage of the borrowers who renewed their mortgages during 2013 who also have HELOCs: One in three
    
• Among households who purchased homes in 2013, percentage who were first-time buyers: 55% (about 350,000)
  (This above-average proportion of first-time buyers is notable given the industry’s concern that the onslaught of mortgage regulations would make it harder for first-timers to qualify.)
  
• Number of Canadian homeowners who fully repaid their mortgages in 2013: 180,000
  
• Of the regular mortgage payments made by home owners:
  • Amount that went towards paying down mortgage principal: $59 billion
    
  • Amount that went towards paying interest: $28 billion
  • The takeaway: Across all mortgage holders, less than one-third of the total mortgage payments are for interest and more than two-thirds of the payments result in reduction of principal.

 

Types of mortgage representatives consulted:

Percentage of borrowers who consulted:

• a banker: 72%
• a mortgage broker: 41%
• a credit union rep: 17%

Among borrowers who took out a new mortgage in 2013 or 2014 (through April), the percentage who obtained their mortgage from a:

• Canadian bank: 47% (vs. 51% in the previous survey)
  
• Mortgage broker: 39% (vs. 31% in the previous survey)
  (It appears brokers close a significantly higher percentage of clients who consult with them, compared to bankers.)
  
• Credit union: 8%

 

Consumer sentiment:

• Percentage who expect a housing bubble will burst (among all age groups): 9%
  (It would be interesting to see how many of the bubble theorists own houses themselves.)
• Percentage who are “comfortable” with their mortgage: 65%
• Percentage who are “nervous” about their mortgage: 15%
• Percentage of consumers nervous about their credit card(s): 24%
  

 

Outlook for the mortgage market:

• The most important factor driving mortgage credit in Canada: the volume of new housing that is completed
• Additional factors:
  • Rising interest rates
  • Canadians moving away from slow growth communities to high growth areas that have higher house prices and larger associated mortgages.
    (This factor drives as much as one-quarter of mortgage growth in Canada.)
• Average mortgage credit growth in Canada per year over the past decade: 8.4%
• Current credit growth rate (as of February 2014): 5.0%
• Total outstanding residential mortgage credit (as of February 2014): $1.23 trillion

 

Economic impacts of stricter mortgage rules

• Number of jobs that should be created, based on population growth, in the two-year period up to mid-2015: About 475,000 (an average of 19,800 per month)
• Job creation as reported by Statistics Canada (up to April 2014): 12,400 per month
  (It’s impossible to know how much of this lost job creation is due to mortgage tightening, but it’s certainly not immaterial.)
  

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Survey Details: Data used in this report was obtained from various sources, including an online survey of 2,000 Canadians. More than one-half (57%) 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 Research (a national public opinion and market research firm) for CAAMP, during April and May 2014.

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Rob McLister, CMT (email)