Friday Mortgage Round Up: September 21st, 2012

CAAMP and CREA forecastsReporting, reporting, reporting – that’s my life this week! The latest industry figures are out – and they point to the cooling of our once-hot real estate market.  But just how much steam are we losing?  Today’s Mortgage Round Up builds on the debate from last week surrounding debt levels as a major threat to the economy. In case you were wondering, my own stance stands firm with with Eric Lascelles of RBC’s Global Asset Management; I don’t see a recession in Canada’s immediate future.

CAAMP’s Confidence in the Mortgage Market

The Canadian Association of Accredited Mortgage Professionals (CAAMP) released their spring report on May 30th, 2012, but I wanted to highlight some of their findings, which speak to consumer behaviour, in hopes of instilling some confidence in the health of the mortgage market.  Yes, in theory an interest rate hike could deteriorate an economy that is largely supported by credit – and this outcome continues to be a significant risk today. However, the average Canadian consumer hasn’t proven to be as careless with affordable credit as some market-bubble supporters suggest.  The proof is in the pudding – errrr the numbers.

During 2011 there were a sizable number of new mortgage initiations and equity take outs; however Canadians are repaying their mortgages quite rapidly and therefore taking advantage of the low rate environment.  A significant portion of Canadians are making efforts to speed up their repayment by voluntarily increasing their regular payments and making additional lump sum payments.

Approximately one half of mortgage holders pay at least $100 per month over and above their regular payment amount.  Approximately one quarter (23 per cent) increased their monthly payments over the last year and one fifth (19 per cent) made a lump sum payment in the last year.

While most renewals (74 per cent) resulted in a decrease in interest rate by an average 56 basis points, nearly one third used some of their savings to increase their payments, thereby decreasing their total amortization period.  Although there is room for improvement with this figure, it is comforting to know that nearly 40 percent (39.1) of Canadians own their homes the total average home equity (including those mortgage free) sit as a healthy 66.8 per cent.  Only about six per cent of home owners have equity ratios below 10 percent and the vast majority (a whopping 82 per cent) have 25 per cent or more in equity.

CREA Forecasts National Pricing to Neutralize Over the Next Year

The Canadian Real Estate Association (CREA) released their latest measure of the housing market and has reduced sales and pricing forecasts for the coming year.  The reality is that the Canadian housing market is slowing and all provincial sales are expected to moderate with the exception of Alberta, Manitoba and Ontario who will see larger drops.  CREA predicts national sales to drop by 1.9 per cent.

Although the real estate market in some cities (namely Toronto and Vancouver) has been kicked into high gear over the last year, national sale prices haven’t been affected too much – a small increase of 0.6 per cent.  The CREA expects a mild pricing correction of 0.1 per cent this coming year as a result of Ontario and BC’s decline being offset by the other province’s modest increases.

TREB Mid-Month Resale Figures

The Toronto Real Estate Board (TREB) released their mid-month resale figures for the first 14 days of September and found that sales dropped 15 per cent compared to this time last year.  This is likely attributed to the recent changes in lending guidelines, the increase in land transfer tax for the city of Toronto, and the rise in home prices. The average home price sits at $496,786 which increased over 9.5 per cent annually.  Average prices were driven by high rise, low rise and condo apartments in the 416.

Sales have dropped both in both the 416 and 905 areas over the last year; however sales in the 416 are dropping at a faster rate (23.1 per cent vs. 9.9 per cent).  The 905 sales remain 83.6 per cent higher, while last year they were 56.6 per cent higher.  The average price has also increased in both areas and remain 11.3 per cent lower in the 905, whereas last year pricing was more comparable as the 905 was only 3.8 per cent cheaper.  New listings have increased quite proportionately in both sectors over the last year as a result of increased prices – however the 905 has 36.1 per cent more listings this year than the 416. Week in Review

Unfortunately, over the last week the best mortgage rates page has seen some upward movements to rates (mostly fixed rates).  The largest movements was seen in the 3 year variable pricing which increased by 25 bps and sits at prime – 0.10 per cent.  On the fixed side, a small 5 bps movements to the 10 year fixed while the 2 year fixed and 5 year fixed both increased by 10 bps.

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