Despite recent reports of overvaluation and the inevitability of a rate rise, the head of the Bank of Canada has a rosy outlook – Governor Stephen Poloz announced his optimism for a balancing market and growing economy in this week’s Senate economic update.
Poloz stated that housing market bubble fears are unfounded, and that any major pricing correction would be due to an external global economic crisis. He added he’s confident home prices will stabilize, while acknowledging market imbalance and high household debt levels continue to be a concern.
His stance is in stark contrast to the warnings published this week by the Organisation of Economic Co-Operation and Development, which called for a 2.25 per cent central rate increase by the end of 2015. Poloz stated he “respectfully disagrees” with the Paris-based think tank’s findings, saying that with a current bank rate at one per cent, and inflation still below its two per cent benchmark, there’s still significant slack before a rate hike is necessary.
CAAMP Report Says More Correction To Come
However, Poloz’s optimism is countered by the latest CAAMP report, which stated the market still has some significant corrections to endure. The report found that the mortgage affordability rules put in place last June have effectively impacted the resale market – but the potential effects on new construction projects have yet to be realized.
“Housing played a major role in the recovery from the recession of 2008/09: housing construction, resale market activity, and mortgage lending contributed directly to job creation. Even more importantly, rising housing values supported consumer confidence and consumer spending, and thereby led to job creation,” states the report, written by CAAMP Chief Economist Will Dunning.
“However, since mid-2012, in the wake of government policies that were intended to slow the housing market, housing activity has indeed slowed. This analyst believes that the slowdown in the broader economy has a great deal to do with the weaker housing market. Moreover, the economic impacts have not yet been fully felt: resale market activity has been reduced, but the adjustment of housing starts has just barely begun.”
Consumer Trends: Fixed Rates Still King
The report, which is comprised of poll results from 2,223 people (60 per cent with mortgages), includes housing market consumer trends and sentiments. It found that fixed rate products are dominating the market, accounting for 82 per cent of all new mortgages. In comparison, nine per cent of new borrowers went with a variable rate, and nine per cent signed on for a combination rate.
It also found that most buyers seem affected by shorter amortization rules, with 84 per cent paying off their mortgages over 25 years or less.
Here’s a roundup of the report’s biggest consumer stats:
-5.58 million: Mortgages in Canada
– 3.94 million: Homeowners who are now mortgage-free
– 30 per cent: Mortgages over the past two decades that were paid off faster than the original amortization
– 3.50 per cent – the average mortgage rate (down from this spring’s 3.52 per cent average)
– 1.5 million: Number of mortgage renewals. Of these, 975,000 got a lower rate, 350,000 got a higher rate, and 175,000 saw no change to their payments.
Mortgage Shopping Methods Still Split
It appears consumers are assessing all of their options when choosing their mortgage products – just under half went with their bank at 42 per cent, while 40 per cent worked with a mortgage broker to get their best rate. Eighteen per cent indicated “other” as their top method.