New Normal for Canadian Mortgage Market

First-time homebuyers continue to enter the Canadian housing market in substantial numbers, encouraged by low interest rates and acting in response to their own favourable economic circumstances, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP), in its
newest consumer survey report, Looking for a “New Normal” in the Residential Mortgage Market.

The report, which examines Canadians’ attitudes about their home purchase decisions, found that homeowners appear to be “happy with the decision to buy their home.” They say they feel confident they can weather a downturn in the housing market and they consider mortgage debt to be “good debt”. Their attitudes are the same whether they live in Toronto, Calgary or Vancouver where prices continue to rise, or in areas where home prices are stabilizing.

The following are some highlights of the findings:

• There were approximately 650,000 homes purchased over the last year and, among those purchases, 55% were first-time buyers

• More than 80% of homeowners in Canada have 25% or more equity in their homes

• Average mortgage interest rate for all homeowners is 3.24% (down from 3.52% the previous year), and 3.02% for mortgages renewed within the last year

• Only 4% of mortgages have rates of 5% or higher

• 87% of all mortgages have amortizations of 25 years or less. For homes purchased in the last year, 92% have a 25-year amortization or less

• In the last year, 74% of new mortgages were fixed-rate mortgages – down from 84% in the previous survey a year ago

• The percentage of new mortgagors with variable rates was 20% – up from 13% in the previous survey

• Combination mortgages were at 6% – up from 3% in the previous survey

• 39% of all new mortgages were obtained through a mortgage broker – up from 31% in the previous survey

• In the past year 11% of homeowners took out equity from their home with the average amount being $51,000 – up from $48,000 in the previous survey

• The #1 use for equity take out was debt consolidation, followed by renovations in second spot and investment purposes at #3

• Last year, 35% of mortgage holders took steps to accelerate repayment, including increasing their payment frequency, making lump sum payments or increasing their regular mortgage payments

• Consumer sentiment: percentage who expect a housing bubble will burst (among all age groups) is just 9%

“From the consumer perspective we have a picture of a very confident, healthy mortgage market,” said Jim Murphy, AMP, President and CEO of CAAMP. “Key to the current stability in the mortgage market is the fact that Canadians continue to pay down their mortgage debt faster than they’re required and they continue to take out five-year, fixed-rate mortgages. Canadians who renew their mortgages are seeing their interest costs reduced, which is boosting their personal financial circumstances, and this will continue to be a positive force during the coming year.”

Low interest rates stimulate home purchase, mortgage debt reduction, optimism

Canadians are reducing their mortgages by negotiating lower interest rates, making lump sum prepayments and repaying their mortgages at, on average, two-thirds of their contracted amortization periods. This has created an attractive landscape for new homeowners, as historically low interest rates have attracted increasing numbers of first-time buyers.

In the survey, Canadians express a strong belief that “real estate in Canada is a good long-term investment” and agree that mortgages are a form of “good debt.” Canadians still feel optimistic about the economy in the coming 12 months, and say they have no regrets taking on the size of mortgage they did.

As always, if you have questions about this report, or other mortgage-related questions, I’m here to help!