The Canadian mortgage market rests in a delicate balance: CAAMP

Housing activity high in three major markets; while most of Canada experiences slowdown

TORONTO, May 29, 2014 /CNW/ - First time home buyers 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 spends some time looking at Canadians' attitudes about their purchase decisions and 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.

Highlights

• 55 per cent of homes purchased in 2013 were bought by first time buyers
• Most Canadians say they have no regrets taking on the size of mortgage they did and that real estate is a good long term investment
• 66 per cent agree in some degree that mortgages are a form of "good debt"
• House prices in Toronto, Calgary and Vancouver have increased by a year-over-year rate of 8.2 per cent, compared to just 2.9 per cent in the rest of Canada
• By next year, housing starts will have fallen by 20 per cent compared to levels in 2011 and 2012
• More than 80 per cent of homeowners in Canada have 25 per cent or more equity in their homes
• The average mortgage interest rate is 3.24 per cent, a drop from the average of 3.5 per cent found in the fall 2013 survey

"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 are 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 pre-payments 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, who made up fifty-five per cent of new homes purchased in 2013.

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.

Economic storm clouds

Even as the housing market appears buoyant, new housing starts have dropped, a slowdown that is just getting started, raising warning flags over bigger negative impacts to come.

"Across Canada the housing market is slowing, and has been on a downward swing since the mortgage policy change in 2012," said Will Dunning, CAAMP Chief Economist. "While the national market may look healthy, activity in the Greater Toronto Area (including Hamilton), the Greater Vancouver Regional District and the Calgary area is skewing the numbers high. In the rest of Canada sales activity has weakened and house prices are flat, and even falling in some communities. Housing has played a key role in driving economic growth and job creation in Canada. But looking ahead, decreased starts and slower price growth will throw off the balance between the housing market and the overall economy."

The Report urges policy makers not to confuse rising home prices in the Greater Toronto Area (including Hamilton) and the Greater Vancouver Regional District where urban land shortages are driving prices, and the Calgary area, which currently benefits from strong job creation, with the slowdown which is evident in other communities across the country.

The strongest indicator is housing starts. The Report says new urban low rise housing starts have dropped by around 15 per cent and it is expected that apartment starts will also soon follow. The overall impact is that starts will have dropped by 20 per cent by late next year, compared to 2011 and 2012 levels.

This matters because the housing market is closely tied to the economy, generating jobs in construction, manufacturing, financial services and more. Each new single family home built in Canada creates 2 to 2.5 "person years" of employment, so a slowdown in starts will inevitably result in fewer jobs.

In addition, a slowdown in the housing market dampens consumer confidence, which is typically boosted by house prices. Declining consumer confidence leads to a decrease in spending, which will negatively impact the broader economy.

For a full copy of CAAMP's spring survey report, visit www.caamp.org.

About CAAMP

CAAMP is the national organization representing Canada's mortgage broker channel. With over 11,800 mortgage professionals, its membership is drawn from every province and from all industry sectors. CAAMP is the leading provider of service and advocacy for its members and sets the standard for the Canadian mortgage industry.  In 2004, CAAMP established the Accredited Mortgage Professional (AMP) designation to enhance educational and ethical standards for Canada's mortgage professionals.

CAAMP's other primary role is that of consumer advocate. On an ongoing basis CAAMP aims to educate and inform the public about the mortgage industry. Through its extensive membership database, CAAMP provides consumers with access to a cross-country network of the industry's most respected and ethical professionals.

SOURCE: Canadian Association of Accredited Mortgage Professionals

Jim Murphy, President and CEO, CAAMP, O: 416-644-5465 / C: 416-940-0011, [email protected]; Jeri Brown, Media Profile, O: 416-342-1842, [email protected]