Archive for April 2009

The Canadian housing and mortgage markets have experienced strong growth during the past decade, mainly due to rapid job creation. However, the Canadian economy reversed direction late in 2008, and the housing market has slowed sharply in recent months. Mortgage demand has also slowed, although the volume of outstanding mortgages continues to expand.

Forecasts are that housing market activity will remain comparatively weak during the remainder of 2009. The forecasts suggest that moderate recovery of housing demand may commence during 2010.

• According to the Canadian Real Estate Association, the dollar volume of resale activity may total just over $100 billion in 2009, and $110 billion in 2010, sharply lower than the $160 billion recorded in 2007.
• According to Canada Mortgage and Housing Corporation, housing starts may be in the range of 60,000 units in 2009, and just slightly more in 2010. This would be far below the average of about 229,000 units per year seen during 2004 to 2007.

The available forecasts of housing activity have been used to generate forecasts of mortgage activity: slowing housing activity implies a significant downshift of mortgage demand.

• The volume of outstanding residential mortgage credit is forecast to continue growing, but at a slower rate than in recent years. For 2009, the growth rate is forecast at 7.6%, followed by 7.0% growth in 2010. By contrast, the growth rate was 12.4% in 2007 and 10.4% in 2008.
• About mid-2010, the volume of outstanding residential mortgage credit in Canada would pass $1 trillion, and the total at the end of 2010 would be $1.04 trillion.
• The volume of annual approvals (including new mortgages, transfers of existing mortgages between lenders, and refinances) may fall to about $150 billion in 2009 and $160 billion in 2010. During 2007 and 2008, approval activity exceeded $200 billion per year.

Source: Canadian Association of Accredited Mortgage Professionals – “The Canadian Residential Mortgage Market During Challenging Times”, April 2009

The Canadian Association of Accredited Mortgage Professionals released its report “The Canadian Residential Mortgage Market During Challenging Times” on April 22, 2009. And while sentiments of Canadians towards the overall state of the economy are low, their expectations of their local real estate markets show an increase over 2008.

Summary of Report Highlights

• Residents in provinces who have felt the greatest impact due to the economic downturn are surprisingly the most positive about the current housing market. Sixty three per cent of Ontarians, 62 per cent of Albertans and 64 per cent of British Columbians believe that now is a good time to purchase a home.

• While one-third of Canadians expect prices to fall, Saskatchewan residents are most optimistic about house pricing with 26 per cent believing values will go up.

• Of those who financed or renewed their mortgage during the past 12 months, over a third (36 per cent) obtained variable rate terms, up from 24 per cent of those surveyed in CAAMP’s fall 2008 report.

• Of all Canadian mortgage holders, 68 per cent have fixed rate mortgages, 28 per cent have variable and only five per cent hold combination mortgages. Fixed rate mortgages are most common among those aged 18-34 years (71 per cent), while Canadians aged 55 years or older are most likely to secure adjustable rates (35 per cent).

• The majority of mortgages (83 per cent) have amortization periods of up to 25 years and a minority of mortgages (17 per cent) have amortization periods of more than 25 years.

• Roughly 9.1 million homes are owned in Canada. The estimated value of these homes is $2.67 trillion and the total outstanding mortgage principal on these homes is estimated at $739 billion. This means that Canadian homeowners have about $1.93 trillion in home equity, which amounts to 72.3 per cent of the total value of their homes.

• Home equity positions in the Canadian market are about 67 per cent greater than in the United States. The US Federal Reserve reports that of the more than 75 million American home owners, the average equity holding is 43 per cent which is in contrast to Canada’s average of 72 per cent equity in their homes.

A full copy of the report is available at http://www.caamp.org/download_docs/Spring-Consumer-Report_Apr09.pdf.

What does this all mean for the Canadian home owner?

To put it in persepctive, consider these factors:

1) Mortgage loan rates are at absolute record lows. In the April 21, 2009 Key Interest Rate Announcement issued by Mark Carney, Governer of the Bank of Canada lowered its target for the overnight rate by one-quarter of a percentage point to 1/4 per cent. The Bank Rate is correspondingly lowered to 1/2 per cent. as a result. Read another way: Money is cheap to get a hold of right now.

2) Real estate values, especially in historically strong markets, are turning positive. There remains a backlog of real estate inventory in most markets, keeping prices stable for the coming months. Most Canadian markets are heading into the natural summer upswing that occurs as spring gets us all out of the house, and active in the housing markets.

3) Stock market performance has been poor, and many Canadians are looking to their assets and equity in real estate to bring them back into the green (more on this in a future article- stay tuned!)

All things considered, what a truly remarkable time to invest in real estate- money is cheap, real estate inventory is high, and banks and mortgage companies are becoming highly competitive for your mortgage business. All of these factors combine to make the right property, in the right city, a brilliant idea- right now.

As Canadians weather the harsh economy, a beacon of their strength is the considerable amount of equity they have in their properties, according to a report released today by the Canadian Association of Accredited Mortgage Professionals (CAAMP).

New challenges, such as budgeting for mortgage payments, are emerging, yet housing affordability has dramatically improved due to lower interest rates and price reductions. The report is authored by CAAMP Chief Economist Will Dunning and based on information gathered by Maritz Research in an online survey conducted in March 2009.

Over 40 per cent of all mortgage holders have at least 50 per cent of the value of their homes in equity, and of all Canadian home owners, which includes those without mortgages, 65 per cent hold at least half the value of their properties. Only two per cent of mortgage holders have negative home equity, meaning the value of the mortgage exceeds the value of the home.

During the past year, 15 per cent of mortgage holders took equity out of their homes, representing a national total of $34 billion. Over half (57 per cent) used these funds for debt repayment or consolidation amounting to $12.5 billion.

“CAAMP’s report demonstrates that home owners have solid equity positions and although facing financial uncertainties, most Canadians have the ability to deal with temporary market fluctuations and reductions in personal income,” said Jim Murphy, AMP, President and CEO of CAAMP. “With only a very small number at risk of not being able to pay or refinance their mortgages, our overall market is very strong.”

There is no doubt that the current economic backdrop means increased financial challenges for Canadians. Job loss is a major risk factor for home owners and 18 per cent of those surveyed indicated an individual in their household had lost a job in the past six months. The economy looms large when people consider buying a home. Despite the fact that 55 per cent say now is a good time to buy, up almost 20 percentage points from fall 2008, only four per cent of homeowners and six per cent of non-owners actually say they anticipate buying – about the same number as last fall.

Low and flexible interest rates plus longer terms are adding buoyancy to the mortgage market. Mortgage holders are extremely successful negotiating their interest rates, knocking off an average of 1.68 per cent from the posted rate. Three-quarters of those who renewed their mortgage in the past year had their interest rate reduced. On average, renewals resulted in interest rate reductions of almost one full per cent. Three-quarters of Canadian borrowers are also likely to see reductions in their interest rates at their next renewal.

“While many Canadians are experiencing mortgage-related challenges, these issues are much less significant than the problems in the American market,” said Will Dunning, CAAMP Chief Economist. “We are not seeing the dramatic mortgage rate resets or panic selling that occurred in the United States, and Canadian mortgage lenders and insurers are demonstrating a willingness to work with those who encounter financial difficulties. These are good signs for the health of the market.”

The popularity of mortgage brokers continues to grow with almost half (46 per cent) of new mortgages taken out in the past year secured through brokers. Over one-half (61 per cent) of mortgage renewals occurred with the major banks.

“With increased choice and negotiation power in today’s market, informed mortgage consumers have an opportunity to leverage lower overall rates,” said Murphy. “CAAMP members are committed to educating consumers and increasing professional standards in the industry.”

Based on current housing market forecasts, the outstanding volume of residential mortgage credit is forecast to expand by close to $70 billion in both 2009 and 2010, growing at a rate of 7.6 per cent in 2009 and 7.0 per cent in 2010, although the growth rate has decreased from 10.4 per cent in 2008. Mortgage credit is expected to surpass $1 trillion about mid-2010. The volume of annual approvals may fall to about $150 billion in 2009 and $160 billion in 2010, downfrom totals that exceeded $200 billon per year in 2007 and 2008.

“The Canadian Residential Mortgage Market During Challenging Times” report contains a wealth of industry data, including consumers’ expectations of the housing market, profiles of mortgage holders, regional breakdowns of survey responses, and additional insight into challenges for mortgage holders in Canada. For a copy of the report, please visit: www.caamp.org