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The Canadian Association of Accredited Mortgage Professionals, or CAAMP, compiled some interesting facts in its November 2010 survey report "The Annual State of the Residential Mortgage Market in Canada" The following info is directly quoted from the sixth annual report prepared for the Canadian Association of Accredited Mortgage Professionals (“CAAMP”) by Will Dunning, Chief Economist of CAAMP. It provides an overview of the evolving state of the residential mortgage market in Canada. Major sections of this report are:


_Introduction and Summary

_ Consumers’ Expectations About Housing Markets

_ Consumer Responses to Topical Questions

_ Consumer Choices and Satisfaction

_ Dimensions of the Residential Mortgage Market

_ Outlook for Residential Mortgage Lending


Data used in this report was obtained from various sources, including an online survey of 2,005 Canadians. More than one-half of the sample (1,174 Canadians) were home owners with mortgages and the remainder were renters, home owners without mortgages, or others who live with their families and are not responsible for mortgage payments or rents. The survey was conducted for CAAMP by Maritz (a national public opinion and market research firm) during October.



Consumers’ Expectations About Housing Markets

Consumers were asked several questions concerning their attitudes and expectations about their local housing markets, and provided their answers on a 10-point scale, where 1 is a very negative response and 10 is a very positive response. An average score of 5.5 out of 10 would be neutral


Local Housing Market Conditions

Responses have deteriorated to the question “is now a good time or a bad time to buy a new home in your community?” However, attitudes remain positive overall: the average score this fall was 6.08 out of 10, slightly above the 5.5 threshold for neutrality. In addition, the average score remains above the levels seen in the fall 2006 to spring 2008 surveys, prior to the recession.

During the past year the greatest deteriorations have been in Saskatchewan and British Columbia. Saskatchewan is the only province where the average score is below the neutral threshold of 5.5, although Manitoba and British Columbia are not far above neutral. The highest ratings were given in Ontario, followed by the Atlantic region and Alberta.


Home Buying Intentions

While there has been a downturn in consumers’ attitudes about the state of the housing market in their communities, home buying plans do not appear to have changed. A question that was first asked in the fall of 2008 asked consumers how likely they were to buy a home during the next year, on a 10-point scale. Over the long term, each year about 5% of Canadian households buy homes (including condominiums). In each of the past three surveys, the responses indicated weak expectations about home buying: in the Fall of 2010 3.56 indicated that they were highly to buy (giving responses of 9 or 10 out of 10). The responses suggest that the recent slowdown in home buying activity might persist.


Expectations about House Prices

Expectations about house prices have also weakened. When asked “to what extent do you think housing prices in your community will go up or down in the next year?”

Canadian consumers gave an average rating of 6.18 out of 10 this fall, above the neutral threshold, indicating that on average expectations are for moderate increases in values.


_ Current expectations for house price increases are highest in Quebec, but are close to the average in most other provinces.

_ The lowest expectations are in Alberta, where the average score of 5.78 is just slightly above neutral.

_ Current expectations for house price increases are broadly similar to those reported prior to the start of the recession (in the four surveys from Fall 2006 to Spring 2008).



Consumer Responses to Topical Questions

In the Fall 2010 edition of the CAAMP survey, consumers’ opinions were sought on several issues, related to housing and mortgages, that have taken on high profiles in the media. The consumers were asked to what extent they agree with various statements, on a 10-point scale: a response of 10 indicates that they agree completely with the statement and a response of 1 indicates they disagree completely. Average scores of 5.5 would indicate neutral opinions.


For all of the questions, responses varied widely, and it is challenging to generalize about consumers’ attitudes. Highlights include:

_ The statement that found the highest degree of agreement (an average rating of 7.87 out of 10) is that “as a whole, Canadians have too much debt”. Almost one-half

(43%) gave ratings of 9 or 10, showing very strong agreement with this statement.  This, coincidentally or not, is one of the highest profile issues, as it has been

asserted repeatedly by senior government officials.

_ There is also substantial agreement (average rating of 6.88 out of 10) that “low interest rates have meant that a lot of Canadians became homeowners over the past

few years who should probably not be homeowners”.

_ However, different perspectives were found with two other questions.

_ There is a widespread opinion that “real estate in Canada is a good long-term investment”.

_ Furthermore, in a statement that was only put to mortgage holders, few agreed (the average score of 3.86 was well below neutral) that “I regret taking on the size of

mortgage I did”, and just 5% agreed strongly with the statement.

_ It is interesting that while a large share of Canadians believe that other people have taken on too much debt or have bought homes for which they are unprepared, when responses about their own situations are aggregated, most appear to believe that they have been responsible. These contrasting sets of responses might be

inconsistent. Meanwhile, data on mortgage arrears indicates that there are very few Canadians who are not meeting their mortgage obligations, and estimates developed in this report indicate that a vast majority of Canadian mortgage borrowers are well positioned to deal with potential increases of mortgage rates.

_ The statement “the recent economic slowdown has impacted my real estate plans”, received responses well below neutral. But, each year only a minority of Canadians will buy or sell a home: the fact that a 12% strongly agreed with the statement (giving answers of 9 or 10 out of 10) suggests that there will be continued negative consequences for housing markets and for mortgage demand.



Consumer Choices and Satisfaction

The survey found that Canadians remain highly satisfied with the terms of their mortgages, and their experiences in obtaining their mortgages:


_ 15% indicate they are completely satisfied with the terms of their mortgages (giving a rating of 10 out of 10) and a further 55% are satisfied (ratings of 7 to 9 out of 10).  Combining these results, 70% are satisfied to some degree.

_ 22% give a neutral satisfaction rate (5 or 6 out of 10).

_ Just 8% are dissatisfied to some degree (1 to 4 out of 10).

_ On average, the satisfaction rate is 7.3 out of 10.


Satisfaction with mortgage experiences was very similar, and the average rating was fractionally higher, at 7.5 out of 10. There are some variations across different groups.  About one-third (31%) of home owners with mortgages had some form of mortgaging activity during the past 12 months: taking out a new mortgage (6%), or renewing or refinancing an existing mortgage (24%). The remainder (69%) did not have any mortgaging activity during the year.  Among those who renewed or refinanced an existing mortgage during the past 12 months, 17% changed lenders and 83% remained with the same lender.  This study asked questions that generated estimates of home owners’ equity.


_ Among home owners who have mortgages, the average amount of equity is about $146,000, representing 50% of the average value of their homes ($291,000).

_ For owners without mortgages equity is equal to the average home value ($335,000).

_ The total value of owner-occupied housing in Canada is estimated at $2.91 trillion.  Mortgages on these homes total $820 billion, leaving $2.08 trillion in home owners’ equity. This equity is equal to 72% of the total value of the housing.


About one-in-five (18%) of mortgage borrowers took equity out of their home in the past year, unchanged from a year ago. The average amount is estimated at $46,000. These results imply that the total amount of equity take-out during the past year has been $46 billion. The most common use for the funds from equity take-out is home renovations, which accounted for about $15 billion of the equity take-out. Debt consolidation and repayment account for $13.5 billion of the total take-out. This part of the total equity take-out would result in corresponding reductions for other forms of consumer debt.  The study asked mortgage borrowers about their mortgage term: 66% of mortgage borrowers reported having a term of four to five years. Just 8% have terms of more than 5 years, and the remaining borrowers (26%) have terms of less than 5 years.  Concerning types of mortgages, fixed rate mortgages remain most popular (66%). A significant minority (29%) are variable and adjustable rate mortgages. Just 4% of mortgages are a combination of fixed and variable rates. The split between fixed rate and variable rate mortgages has been quite stable over time. This is surprising, since there have been significant changes in the relative rates for these types of mortgages.  During the past two years, rates for variable rate mortgages have been considerably lower, yet there has not been a major shift in type selection. The implication is that choice of mortgage types is influenced more by individuals’ assessments of risks, rather than based on cost differences.  With regard to mortgage amortization periods, 22% of mortgages in Canada have amortization periods of more than 25 years. , The share is quite high (42%) among home owners who have, during the past year, taken out a new mortgage on a newly purchased home or condominium.


Looking at interest rates, the CAAMP/Maritz data indicates that:


_ The average mortgage interest rate for home owners’ mortgages is 4.22%, a drop from 4.55% a year earlier.

_ For borrowers who have renewed or refinanced a mortgage during the past year, their current average interest rate is lower (by 1.09 percentage points) than the rates

prior to renewal. Among borrowers who renewed, a large majority (72%) saw reductions, a smaller proportion (17%) saw their rates rise, and 11% had no change.

While some borrowers saw their interest rates increase at renewal, the increases were minor for most. About 75,000 borrowers had their rates increase by more than

1 percentage point. This amounts to less than 2% of the 5.65 million Canadian home owners who have mortgages.

_ The survey also sheds light on the extent of mortgage rate discounting in Canada.  Borrowers who have taken five year, fixed rate mortgages during the past year have

an average mortgage interest rate of 4.23%. Typical advertised rates averaged 5.65% over the same period – these borrowers have negotiated discounts that

average 1.42 percentage points below typical advertised rates. 


Given concerns being expressed about consumers’ abilities to cope with potential rises

in interest rates, this issue of CAAMP’s “Annual State of the Residential Mortgage Market” asked mortgage holders to indicate “the amount at which, if your monthly

mortgage payment increased this much, you would be concerned with your ability to make your payments”. The average amount of room is $1,056 per month on top of their current costs. Combining other data from the survey, it appears that a vast majority of mortgage holders have considerable capacity to afford rises in mortgage interest rates.  There is a sizable minority (about 350,000 out of 5.65 million, or about 6%) who would be challenged by rate rises of less than 1%, and a further 225,000 (5%) have thresholds in the range of 1.00% to 1.49%. However, most of these have fixed rate mortgages: by the time their mortgages are due for renewal, time will have increased their financial capacity and reduced the amount of mortgage debt being financed. There are about 100,000 borrowers who are susceptible to short term moves of interest rates, which is a quite small share (less than 2%) of the 5.65 million mortgage holders in Canada.  Mortgage holders report that, on average, they obtained 1.96 quotes when they obtained their current mortgages. Only 10% of borrowers obtained four or more quotes.  Among borrowers who have taken out a new mortgage during the past year, 39% obtained the mortgage from a bank, 40% from a mortgage broker, and 21% from other sources.



Dimensions of the Residential Mortgage Market

The residential mortgage market is a large and rapidly growing component of the Canadian financial system.


_ As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada.

_ Growth of residential mortgage credit has slowed in the aftermath of the recession, which negatively affected home buying. However, the growth rate during the past

year ($71 billion, or 7.6%) remains quite strong.

_ Another perspective on growth of the mortgage market is in the volume of new approvals, which includes not just new mortgages, but also transfers between

lenders as well as refinances of existing mortgages.


In 2009, the volume of approvals ($244 billion) set an all-time record.  Chartered banks account for almost one-half (49%) of residential mortgage credit, although the share has fallen from 56% two years ago. Among the other categories of lenders are NHA mortgage-backed securities (30%, up sharply from 22% two years ago), credit unions and caisses populaires (12%) and five other categories that account for 8% in combination (trust and mortgage loan companies, life insurance companies, pension funds, non-depositary credit intermediaries and other financial institutions, and special purpose corporations).

The rate of mortgage arrears in Canada increased during the recession but has recently eased slightly, to 0.42%. The improving employment situation in Canada should lead to further reductions in the arrears rate.



Outlook for Residential Mortgage Lending

The recession brought reduced home buying activity and construction of new homes, resulting in slower growth of the mortgage market. Home-buying activity and housing construction are now slowing. Looking forward, demand for mortgages will be reduced compared to prior to the recession, but in historic terms will be strong.

Housing market activity has been very volatile during the past two years. At this time, it appears that we have reached the end of a sequence of temporary factors that distorted the housing market. It appears likely that activity during 2011 will be similar to very recent levels. These levels are strong enough to support stable housing values.  Consequently, the volume of residential mortgage credit outstanding is forecast to continue expanding, but at slower rates. Growth is forecast at about 7% during 2010, 6.5% in 2011, and close to 6% for 2012.  Mortgage approvals (which includes not just new mortgages but also transfers between lenders as well as refinances of existing mortgages) is forecast at $235 billion for 2010(the second highest ever), followed by $203 billion for 2011 and $211 in 2012. 


This information and the tables of data can be found on the CAAMP Report