MPC's state of the mortgage market 2020

The State of the Mortgage Market: 2020

Canadians Crave Homeownership, Yet Remain Prudent

Mortgage Professionals Canada has released its latest State of the Mortgage Market report today, which is chock full of new stats and insights into the Canadian mortgage market.

Despite regular headlines about rising home prices and overvaluation in the country’s largest centres, the report finds that Canadians continue to see homeownership as an important element of their long-term financial plans.

“Canadians have also remained prudent with their spending habits on housing, which is evidenced in today’s report,” notes author Will Dunning, Chief Economist of MPC. “For example, Canadians pay off their mortgages much quicker than their original amortization, and each year one in three borrowers make some additional contribution to accelerate their repayment schedule.”

room for traditional mortgage brokers in a digital futureSeveral other key findings include:

  • In higher-priced areas, Dunning says the “fear of missing out” phenomenon is greatly overstated. Of 18 factors considered, the “prestige” of homeownership ranked last. The top four considerations were monthly carrying costs, down payment savings, the potential for the house price to change (up or down) and potential future earnings.
  • The debt-to-income ratio continues to increase, but the debt-to-assets ratio is flat, suggesting the majority of debt increase by Canadians is actually for sound financial reasoning, even in our high-priced markets.
  • Overall mortgage growth seems to be dampened by homeowners’ aggressive mortgage repayments in our low-interest rate environment.

For a deeper dive, we’ve extracted the most relevant findings by category below…

The Mortgage Market:

  • 6 million: The number of homeowners with mortgages (out of a total of 9.91 million homeowners in Canada)
  • 1.45 million: The number of Home Equity Line of Credit (HELOC) holders
    • This is down 9% from 1.6 million last year
  • 4.82 million: The number of tenants in Canada

Mortgage Types

  • 74%: Percentage of mortgage holders with fixed-rate mortgages in 2019
    • Up from 68% in 2018
    • For mortgages on homes purchased specifically in 2019, fixed-rate mortgages were chosen 85% of the time
  • 21%: Percentage of mortgages that have variable or adjustable rates
    • Down from 27% in 2018. But expect this percentage to rise in 2020
  • 5%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages (unchanged from 2018)
  • “The lack of a cost advantage for variable rates, and with expectations for most of the year that variable rates were unlikely to fall for some time, caused a large majority of active borrowers to choose the security of a fixed rate,” Dunning wrote.

Amortization Periods

  • 11%: Percentage with extended amortizations of more than 25 years (unchanged from 2018)
    • However, looking specifically at mortgages taken out in 2018 or later (after the stress test on uninsured mortgages came into effect), 14% have amortizations exceeding 25 years.
  • 21.2 years: The average amortization period (for all mortgage holders)

New immigrants driving housing demandActions that Accelerate Repayment

  • ~32%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (down marginally from 33% in 2018)
  • Among all mortgage holders:
    • 15% made a lump-sum payment (the average payment was $19,100down slightly from $22,100 a year earlier)
    • 17% increased the amount of their payment (the average amount was $370 more a month, compared to $450 in 2018)
    • 6% increased payment frequency (down from 8%)

Mortgage Arrears

  • 0.23%: The current mortgage arrears rate in Canada (as of September 2019), down slightly from 0.24% in the previous report
    • This equates to roughly 1-in-427 borrowers
  • “Most mortgage defaults are due to reduced ability to pay, especially including job loss, but also income reductions due to reduced hours or reduced hourly pay rates,” Dunning wrote. “Marital breakdown can also reduce ability to pay.”

Mortgage Sources

  • 54%: Percentage of borrowers who took out a new mortgage in 2019 who obtained the mortgage from a Canadian bank
    • This is down from 62% in 2018
  • 32%: Percentage of recent mortgages that were arranged by a mortgage broker
    • Vs. 28% in 2018, 39% in 2017 and a high of 43% in 2016
    • Dunning attributes the dip in 2018 to a “statistical anomaly,” which he says is known to happen in sample surveys. “This new data confirms that the mortgage market remains competitive,” he said
  • 10%: Percentage who consulted a mortgage rep from a credit union
    • Vs. 5% in 2019
  • 5%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 7% of all mortgages)

Interest Rates

  • 3.14%: The average mortgage interest rate in Canada
    • This is up from the 3.09% average recorded in 2018 and 2.96% for 2017
    • Just 4% of mortgage borrowers have interest rates of 5% or more
  • 3.14%: The average interest rate for mortgages on homes purchased during 2019
    • Fixed rates averaged 3.12% and variables averaged 3.16%
  • 3.06%: The average rate for mortgages renewed in 2019
    • 3.04% for fixed mortgages and 3.05% for variables
  • 46%: Of those who renewed in 2019, percentage who saw their interest rate decrease
  • 3.14%: The average actual rate for a 5-year fixed mortgage in 2019, more than two percentage points lower than the posted rate, which averaged 5.27%

Accessing home equityEquity

  • 73%: The average home equity of Canadian homeowners, as a percentage of home value
  • 4%: The percentage of mortgage-holders with less than 10% home equity
  • 52%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
  • 57%: The average equity ratio for owners with both a mortgage and a HELOC
  • 86%: The equity ratio for those without a mortgage but with a HELOC
  • 88%: Percentage of homeowners who have 25% or more equity in their homes
  • 78%: Among recent buyers who bought their home from 2015 to 2019, the percentage with 25% or more equity in their homes
    • This is up significantly from the 50% reported last year

Equity Takeout

  • housing costs8.6%: Percentage of homeowners who took equity out of their home in the past year (down from 10% in 2018)
  • $72,000: The average amount of equity taken out (down slightly from $74,000 in 2018)
  • $62 billion: The total equity takeout over the past year (down from $72 billion in 2018)
  • $39 billion was via mortgages and $22 billion was via HELOCs
  • Most common uses for the funds include:
    • $23.8 billion (39%): For home renovation and repair
    • $14.1 billion (23%): For debt consolidation and repayment
    • $11.4 billion (18%): For investments
    • $7.3 billion (12%): For purchases
    • $3.6 billion (6%): For “other” purposes
  • Equity takeout was most common among homeowners who purchased their home during 2005 to 2009

Sources of Down Payments

  • 20%: The average down payment made by first-time buyers in recent years, as a percentage of home price
  • The top sources of these down payment funds for all first-time buyers:
    • 84%: Personal savings
    • 27%: Gifts from parents or other family members (vs. 40% for purchases made over the last four years)
    • 27%: Loan from a financial institution
    • 24%: Withdrawal from RRSP
    • 15%: Loan from parents or other family members (20% for purchases over the last four years)

Homeownership as “Forced Saving”

  • ~47%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
    • Up from ~43% in 2018, but down from 50% in 2017
    • “The forced saving component of mortgage payments has risen sharply in relation to incomes,” Dunning noted. “In 2019, forced savings via mortgage payments amounted to 20.1% of monthly incomes, which is far above the long-term average of just 10.0%).”

Consumer Sentiment

  • 91%: The percentage of homeowners who are happy with their decision to buy a home
  • 3%: Percentage of those who regret their decision to buy a home
    • Of those who regret their decision to buy, 6% say the regret pertains to the particular property purchased
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