There’s no denying that last summer’s CMHC mortgage rule changes have had a profound impact on some buyer segments. However, the latest report released by the Canadian Association of Accredited Mortgage Professionals (CAAMP) indicates the ripple effect of stunted affordability will be felt at various economic levels.
A Widespread Slowdown for Starts
Titled Change in the Canadian Mortgage Market, the annual Spring report, which was compiled by Maritz Research Canada, shows decrease in buyer demand has led to major delays and cancellations in the new housing industry. Starts are down 15 per cent nationally compared to pre-rule change conditions, and are anticipated to drop 25 to 30 per cent by 2015. Among the hardest hit are the condo markets in urban centres, traditionally supported by a first time buyer segment that may be taking longer to afford home ownership.
Stalling Canada’s Economic Engine
The report states that such a downturn poses a threat to Canada’s overall economy, as the housing industry is a main support for recession recovery. The report projects 150,000 job losses by 2015 as a result of limited starts, in industries ranging from construction, sales and financing to landscaping, movers and renovators.
Jim Murphy, president and CEO of CAAMP, stated in a release that slowing activity may have long term consequences. “What is cause for concern is that the housing market, an important engine of growth for the Canadian economy, is slowing to such an extent that without any change, it could take another five years to recover,” he says.
The Amortization-Averse Consumer
The silver lining to CAAMP’s report is a positive uptick in consumer debt responsibility. It was found that while current homeowners are mainly comfortable with carrying mortgage debt, most plan to repay it early, with an expected average amortization period of 21.6 years. As well, 80 per cent of homebuyers are looking to avoid a lengthy payoff period, with an original amortization of no more than 25 years.
“The CAAMP survey demonstrates that Canadians with mortgages are managing debt responsibly, negotiating low interest rates and paying down their mortgage faster than required,” states Murphy.
According to the report, 18 per cent, or 1.1 million homebuyers took further measures to pay their home off faster with increased or rapid mortgage payments, and 16 per cent (975,000) made a lump sum payment over the last year, effectively shaving interest and the overall payment timeline.
Buyers Are Locking In
The report also shows that with such low mortgage rates becoming more commonplace, home buyers are more likely to demand rock bottom financing – and they’re locking in when they find a great deal. Sixty nine per cent of home buyers chose a fixed rate mortgage, and the average mortgage rate dropped from 3.64 per cent to 3.52 per cent.
It’s no surprise consumers are shifting their preference to fixed options – data from RatePulse, our monthly mortgage digest, shows that as of May 2013, the spread between the lowest fixed and variable rates is only 14 basis points – compared to 149 basis points five years ago!
To learn more about how the Canadian housing market has changed, check out our latest infographic: 5 Years of Mortgages.