Friday Mortgage Round Up: January 11th, 2013

What's in Store for This Week's Roundup

A Second Look at the Aging Demographic

Although I’ve already touched on the effect that Canada’s aging demographic has on the overall real estate market, I stumbled across a noteworthy report by the Globe and Mail which featured Professor George Athanassakos of Richard Ivey School of Business at Western University.  In this report, Athanassakos takes an in depth look at the past and present population ratio and home prices in Canada.

The population ratio is simply those not in the work force (in the age groups of under 20, over 64) vs. those in the work force (20-64).  Those that are in the work force generally represent the demand for real estate; aside from the odd 18-year-old who is buying Hollywood homes, aka Justin Bieber.

What is noteworthy – as Athanassakos points out – is the inverse relationship between this ratio and housing prices.  As the workforce swells, demand for housing naturally increases and the ratio falls; this is characteristic of the Canadian population over the last 16 years or so.  An increase in demand for housing signals an increase in prices – check out my past blog to see how.  Needless to say, prices in the housing market have been driven upward over this same period of time and supported by the prominent workforce.

The Road Ahead

It’s no secret that the Baby Boomers are a huge portion of our demographic and let’s face it – they aren’t getting any younger.  As this shift continues and the workforce is not replaced at the same rate, we will begin to see the population ratio increase and according to the Globe and Mail it has already begun to flat-line   What this means is that home prices should begin to correct and/or flat line.

How Consumers Feel About the Present and Future

CAAMP’s Fall 2012 Consumer and Industry Survey noted that most consumers see the glass as half full!  Eighty three per cent are comfortable with their mortgage debt, 80 per cent can afford to increase their monthly mortgage payment by a minimum of $200, nearly 75 per cent have no regrets to their mortgage amount and 70 per cent could handle a downturn in the market – that’s a lot of optimism considering the dire predictions for market stagnation this year.

However, nearly 90 per cent are concerned with Canadian’s debt levels, 77 per cent feel many Canadians who own homes really shouldn’t and 60 per cent are concerned that we are in a housing bubble.  It turns out those who are concerned are only nervous about the near future and remain optimistic about the health of home prices over the long term, as 76 per cent of consumers “Expect home prices to increase”.

Market Drivers: Cold Hard Numbers or Feelings?

Both have a significant influence on markets!  The market equilibrium will eventually be reached, so solely concentrating on the new mortgage rules and its dampening effects on the demand for housing or the demographics of the marketplace would be foolish.  However, the media will continue to put the spot light on the most exciting news out there and cover these topics week over week.

But you can’t discredit the impact of an optimistic consumer. Consider the “Black Sheep Theory” and how people every day call on their emotions to drive their decisions.  The stock market is a perfect example of where numbers are not the be all and end all to determining a market price.

We act on feelings all the time!  Your neighbour boasts about a stock he bought two months ago that has gone up 10 per cent and isn’t stopping there.  You want in on the action too so you buy in and tell your friends about your own success.  Things are going really well … stock prices are increasing … you’re excited so you’re holding on … and then eventually when things start to go south, you sell.  You sell for fear that you will not capitalize on your investment or lose what you’ve gained thus far.  Now your neighbour feels that way too so he sells, and so on and so forth – and prices are driven down.

Unfortunately with the tightening of mortgage rules and thus a slowdown in mortgage origination, an optimistic outlook on the mortgage market isn’t all that it takes to ensure a soft landing.  But the fact that most are still in it for the long haul and consider real estate a good investment is good news! Week In Review

There’s been no movement over the past week for variable mortgage rates, with one, three, five and seven-year rates staying put at their current levels. The week’s biggest movement was seen for the seven-year fixed, which dropped a total of 13 basis points to 3.41, from last week’s 3.54 per cent. Ten-year fixed also saw some downward movement, dropping two basis points to 2.79 from 3.77 per cent.


Related Topics

Mortgage News / Mortgages

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