November 2011 CAAMP Mortgage Survey Highlights
In CAAMP's media release this month, President and CEO Jim Murphy expressed optimism at the steps Canadians have taken over the past year to get their fiscal house in order.
“Despite less than positive feelings towards the economy, or maybe because of that, Canadians are showing a level of prudence in their decisions that is inspiring,” said Murphy. "A vast majority of mortgage holders has considerable capacity to afford rises in mortgage interest rates."
“That suggests to us that there is no need for policy makers to introduce new measures that would reduce housing activity.”
Below are the highlights:
The Real Estate Market
• 13.6 million: The number of households in Canada (9.55 million of these are owner-occupied)
• $3.017 trillion: Value of owner-occupied housing in Canada
• 7.27 out of 10: Respondents’ average rating of the statement: “Real estate in Canada is a good long-term investment”
[A rating of "1" means they disagree completely. A rating of 10 means they agree completely.]
• 450,000: Housing resales in the past year (source: CREA)
• 184,800: Number of housing starts forecast for 2011 (vs. 190,000 in 2010)
The Mortgage Market
• 5.80 million: Number of owner-occupied households with mortgages
• 3.75 million: Number of owner-occupied households that do not have mortgages
• 80%: Percentage of people who get a mortgage when buying a home
• 7.7% ($80 billion): The forecasted growth in residential mortgage credit for 2012, according to report author Will Dunning. (For 2012, the expected growth is 7.3%.)
• 7.98 out of 10: Rating given by respondents to the statement: “As a whole, Canadians have too much debt”
• $1.079 trillion: Value of outstanding Canadian residential mortgages
Renewals & Refinancing
• 32%: Percentage of home owners with mortgages who had some form of mortgaging activity in the past year
o 9% (525,000) took out a new mortgage
§ $216,000: Their average mortgage principal
o 23% (1.35 million) renewed or renegotiated
§ $157,000: Their average mortgage principal
o 1.9 million either took out a new mortgage, renewed or refinanced
§ $326 billion: Total mortgage volume from the last 12 months
• Of those who renewed or refinanced:
o 21% changed lenders
79% stayed with the same lender
• 7.28 out of 10: Respondents’ average rating of the statement: "How likely are you to place your mortgage through the same lender?"
[This data point was not published in the report but was part of the survey. People are obviously inclined to stay with their existing lender, largely out of comfort and convenience of not having to re-apply elsewhere. Research shows that people who stay with their existing lender often, but not always, pay higher mortgage rates.]
Early Renewal Penalties
• 15% (850,000): Percentage of the 5.8 million home owners who refinanced early (before maturity)
o 53% paid no penalties due to renewing with the same lender
[Note: People don't always pay a penalty out of pocket. This 53% likely includes renegotiated mortgages with blended rates, which often have the penalty built in.]
o 9% paid penalties of less than $1,000
o 14% paid a penalty of between $1,000 to $2,499
o 6% paid a penalty of $2,500 to $4,999
o 18% paid a penalty of $5,000 or more
[A big penalty doesn't automatically mean you shouldn't refinance. Your broker or lender rep can easily do a breakeven analysis. That quickly confirms the economic benefit or cost of breaking your existing mortgage.]
• 500,000: Number of mortgages renewed on schedule (over the past 12 months)
[If you're coming up for renewal, start your mortgage hunt a minimum of 120 days before closing...and get a rate hold to protect yourself.]
• 60%: Percentage of mortgage holders with a fixed rate mortgage
o 72% of which have always had a fixed rate
o 28% had a variable at some point
§ Half of this 28%, or roughly 450,000 households, switched from variable to fixed within the last 12 months
• 31%: Percentage of mortgage holders with variable or adjustable rate mortgages
o 33% say their mortgage was always variable/adjustable
o The remaining two thirds have switched from fixed rates. Of those:
§ 22% (or 400,000 households) made that switch within the past year
§ 45% switched more than a year ago
[Within the past year specifically, 37% of borrowers took variable rate mortgages. CAAMP attributes this increase in variable popularity to:
1. The near-2% spread between fixed and variable rates over the last year
2. The expectation that rates will stay low.
3. The concept of “mortgage lifecycles” (i.e., Young homeowners are more likely to choose fixed rates. As they age and are in a better financial position, they opt for lower rates over security.
Despite the above, we've see a huge shift back to fixed rates as of late. That's due largely to lenders slashing variable-rate discounts.]
• 8%: Percentage with “combination” mortgages (i.e. part variable and part fixed...aka., hybrid mortgages)
[People just aren't biting on hybrids, despite the advertised benefit of diversifying one's interest rate exposure.]
• 22%: Percentage of Canadian mortgages with amortizations over 25 years
o Two years ago, 18% had amortizations over 25 years
o Three years ago, 16% had amortizations over 25 years
[As home prices rise, so has demand for the greater affordability of long-term amortizations.]
• 41%: Percentage of homeowners who purchased in 2011 and chose an amortization period longer than 25 years
• 90%: Number of mortgage holders who expect to "considerably shorten their amortization period"
• 8%: Number of mortgage holders who expect to lengthen their amortization
• 3.92%: Average interest rate paid by mortgage holders
o Down from 4.22% a year ago
• 1.46: The estimated average discount rate off posted 5-year fixed rates (in percentage points)
The data quoted from this report was commissioned by CAAMP and produced by Will Dunning, Chief economist of CAAMP, in collaboration with Maritz. This report is based on online survey responses from 2,000 Canadians compiled between from October 20 and 25, 2011.
With the Holiday Season just around the corner, it is time to plan for the closings during the busy Season.
Our office will be closed on December 26th and 27th, with part-time hours December 28-30th. We too will be closed January 2nd to enjoy the Holidays with family and friends. If at anytime you need to get a hold of me, simply send me an email or call, I'm her to help.