Is the Canadian Mortgage Industry’s Perfect Storm Influencing Consumer Behaviour?

The mortgage industry has weathered the perfect storm over the past 3 weeks as we’ve seen:

  • Fixed mortgage rates increase 0.85% in 3 weeks
  • New mortgage regulations coming into effect (new 5 year posted qualifying rate, 90% maximum refinancing, and 20% minimum down payment for investment related insured mortgages)
  • Bank of Canada announcing their key interest rate could go up in June 2010 rather than July 2010
  • Impending HST introduction in July 2010

As a result, mortgage applications and deals have increased as some brokers are experiencing 20-25% of their full year’s volumes in just the past few weeks and once variable rates start moving that should also lead to another busy time.

So I was wondering – have Canadian mortgage consumer’s behaviour changed over these busy past few weeks?

I ran some stats today to see what the outcome was and specifically looked at:

  • Our search stats from what we’ll call the “Pre-chaos period” (ie. March 1 – 28, 2010) – the day before RBC announced the first fixed rate increase
  • Against the”Post-chaos period” (ie. March 29 – April 22, 2010) – the day of RBC’s rate announcement until yesterday
  • The data involved 189,486 mortgage searches on RateSupermarket.ca
  • I’ve stripped out all searches with $2M+ mortgage values and those under $50KI understand that this information doesn’t provide data into what type of mortgage consumer’s ultimately got pre-approved or applied for, but does provide some insight into what Canadians were searching for as all the mortgage related news came out.

    Mortgage values – searches

    Ontario

    Average mortgage value
    Province Pre-chaos Post-chaos Difference
    (Post – pre)
    Difference (%)
    Alberta $279,083 $278,202 – $880 -0.3%
    British Columbia $298,133 $294,595 – $3,538 -1.2%
    Manitoba $203,987 $188,471 – $15,516 -8.2%
    New Brunswick $176,492 $190,820 $14,328 7.5%
    Newfoundland and Labrador $200,980 $201,822 $842 0.4%
    Northwest Territories $248,629 $249,816 $1,187 0.5%
    Nova scotia $200,287 $178,059 – $22,227 -12.5%
    Nunavut $264,167 $265,500 $1,333 0.5%
    $251,155 $249,684 – $1,471 -0.6%
    Prince Edward Island $156,609 $153,776 – $2,834 -1.8%
    Quebec $238,511 $227,202 – $11,309 -5.0%
    Saskatchewan $225,474 $234,637 $9,163 3.9%
    Yukon $347,538 $251,450 – $96,088 -38.2%
    Grand Total $256,943 $254,177 -$2,766 -1.1%
    • Over this 8 week period there was actually little overall fluctuation in average mortgage value searches
    • Biggest changes were in Nova Scotia (-12.5%) and New Brunswick (+7.5%) if we remove Yukon due to lower search volumes
    • Despite the government’s rule changes being introduced to make Canadian borrowers “more prudent” and get them used to having higher interest rates in the future rather then get too used to historic low interest rates, the average mortgage value remained about level
    • This could be as a result of first time home buyers trying to get into the market and current home owners looking to refinance before rates went up
    • I thought the mortgage amounts would have dropped more than 1% after the Post-chaos period as some consumers would have had to start looking to borrow less due to affordability, as rates rose

    Amortization period

    Amortization period
    Province Pre-chaos Post-chaos Difference
    (Post – pre)
    Alberta 23.9 23.7 – 0.22
    British Columbia 24.4 24.3 – 0.09
    Manitoba 22.8 22.8 – 0.03
    New Brunswick 21.8 22.2 0.36
    Newfoundland and Labrador 22.6 22.3 – 0.37
    Northwest Territories 23.9 20.8 – 3.04
    Nova scotia 22.3 21.3 – 1.01
    Nunavut 23.3 24.6 1.31
    Ontario 23.2 23.4 0.17
    Prince Edward Island 19.6 21.9 2.35
    Quebec 23.8 23.8 0.00
    Saskatchewan 23.1 23.0 – 0.15
    Yukon 21.6 21.5 – 0.16
    (blank) 23.5 23.5 0.02
    Grand Total 23.47 23.49 0.02
    • Amortization periods searched for remained fairly constant during the period
    • A slight increase was expected during the Post-chaos period as mortgage shoppers started increasing the length of time they had to repay the mortgage as the home loans repayments became more expensive as a result of higher rates (fixed)

    Fixed vs variable rates

    Rate type searches
    Rate type Pre-chaos Post-chaos Difference
    (Post – pre)
    Fixed closed 48% 49% 1.1%
    Fixed open 6.0% 6.2% 0.2%
    Fixed – total 54.2% 55.5% 1.3%
    Variable closed 18.3% 18.1% -0.3%
    Variable open 10.7% 10.4% -0.3%
    Variable – total 29.1% 28.5% -0.6%
    • Slight increase in searches towards fixed rates as they started increasing
    • We expect variable rate searches to increase over the coming weeks as they continue to look more affordable compared to fixed rates, and as the next Bank of Canada rate announcement approaches on June 1 2010, where they could announce the target for the overnight rate is increasing

    Top rate type searches

    Top 10 Rate type & term searches
    (% of total searches)
    Rate type & term Pre-chaos Post-chaos Difference
    (Post – pre)
    Fixed closed 5 year 28.9% 28.8% -0.1%
    Variable closed 5 year 9.4% 9.9% 0.4%
    Variable open 5 year 5.0% 4.9% -0.2%
    Fixed closed 3 year 3.9% 4.1% 0.2%
    Fixed open 3 year 2.4% 2.6% 0.2%
    Fixed closed 10 year 2.4% 2.5% 0.2%
    Fixed open (not sure) 2.4% 2.5% 0.1%
    Fixed closed 4 year 1.6% 2.1% 0.5%
    Variable closed 3 year 2.0% 1.8% -0.2%
    Fixed closed 2 year 1.4% 1.5% 0.1%
    • Again the change in the type of searches did not change over the period, with the largest changes being a slight increase in 4 year fixed closed and 5 year variable closed rates

    Overall, so far, it doesn’t seem like the mortgage industry’s Perfect Storm seemed to radically change the consumer behaviour on RateSupermarket.ca over the past 8 weeks, but there were some subtle shifts. We’ll revisit this analysis after the Bank of Canada increases rates to see if there is a more pronounced change in Canadian consumers mortgage shopping behaviour.

    Kelvin

Related Topics

Economic News / Mortgage News / Mortgages

One thought on “Is the Canadian Mortgage Industry’s Perfect Storm Influencing Consumer Behaviour?

  1. As a mortgage lneedr who has been in business for more than 20 years, I can tell you that one of the best strategies is to make extra payments towards the principal balance. You can do this in several ways: when you mail in your monthly payment, include a check for an additional amount (if you just round up to the nearest $ 100 you should be fine). You want to use a separate check and notate apply to principal in the memo section because if you don’t the lneedr may not know what you want them to do with it and put it in your reserve account (tax and insurance reserve) instead. Then, when you get your tax refund each year, pay yourself first by making an extra principal and interest payment using the same system. Just one extra principal and interest payment a year will reduce the term on a 30 yer loan to less than 24 years so with extra principal payments monthly as well, you should be able to cut the term almost in half and save yourself almost 15 years worth of interest.

Leave a Reply