Trends and predictions for Canada’s mortgage market

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The Canadian Association of Accredited Mortgage Professionals has released its Annual State of the Residential Mortgage Market in Canada report for 2012.

The report, authored by CAAMP Chief Economist Will Dunning, offers a number of insights into Canada’s mortgage market, including trends from 2012 that can help shed light on things to expect in 2013.

Mortgage types
According to the CAAMP report, most Canadians chose fixed-rate mortgages for homes purchased throughout 2012. Data shows that fixed-rate mortgages comprised 79 percent of the market. Meanwhile, adjustable-rate mortgages made up 10 percent of the market. Combinations of both took up 11 percent.

These figures mark a considerable change from years past. The CAAMP report shows that in prior years, fixed-rate mortgages comprised approximately two-thirds of the market and adjustable-rate mortgages were closer to one-quarter. Combination mortgages, meanwhile, were well below their current standing of 11 percent.

Mortgage lengths
Longer mortgage amortization periods have become the standard in recent years, with 68 percent of home loans made in 2012 having amortization periods of 25 years or less, marking an 8 percent increase from the CAAMP’s spring 2012 survey. In addition, 32 percent of mortgages have extended amortization periods.

Payment trends
Data shows that current mortgage holders are taking steps to speed up the repayment process by increasing payment amounts, making larger pre-payments and increasing the frequency of payments. The CAAMP reports that 32 percent of borrowers took one or more of these steps in 2012. This has resulted in actual amortization lengths being one-fifth shorter than contracted lengths. Survey respondents indicate that during 2012, borrowers increased regular payments by $3.5 billion per year. Meanwhile, lump sum payments equal $20 billion.

Mortgage rates
Figures show that the average mortgage rate for homeowners is 3.55 percent. This is a decrease from 3.94 percent in 2011. For buyers who purchased their homes in 2012, however, the average mortgage rate is 3.26 percent. This is a 0.68 percent decrease from 2011. The average rate for recently renewed mortgages is 3.24 percent.

Home equity
Home equity is equal to 70 percent of the total house value overall among all homeowners overall. Equity is 51 percent on average for homeowners with mortgages but not a home equity line of credit. For homeowners in the reverse situation, those with a HELOC but not a mortgage, equity is 78 percent on average. For homeowners with both, the average equity is 57 percent.

According to the CAAMP, approximately 6 percent of homeowners took equity out of their homes in 2012. The average value of the equity taken out is estimated at $49,000, translating to $30 billion in equity take-out among all homeowners. Most of this money was spent on home renovation, coming in at $8.25 billion. Debt consolidation and repayment came next, with $7.5 billion. Various purchases, including paying for education, comprised $6.5 billion. Investments came in at $5.25 billion, while $2.5 billion was used for unspecified purposes.

The future of the market
A large portion of the CAAMP report takes government restrictions to task for slowing down the market. The policy changes put in place by Finance Minister Jim Flaherty are expected to cause a prolonged downturn in the market. Effects from the downturn have already surfaced, with home sales dropping in October on a year-over-year basis, falling 0.1 percent from September and 0.8 percent from the same time last year.

However, both the Canada Mortgage and Housing Corporation and the Canadian Real Estate Association are optimistic about the future of the country’s real estate market, predicting that new mortgage restrictions might cause temporary distress, but will not lead to lasting negative consequences.

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