Summarising the CAAMP Mortgage Market 2011 Report

There are two important reports that come out every year that are the most referenced sources for mortgage statistics in the year following. Today, CAAMP released one such report ‘The Annual State of the Residential Mortgage Market in Canada, which we will be using henceforth for much of our mortgage market references!

At 30+ pages, the report is a little long, but lucky for you, we are summarising the important points below!

The Canadian debt situation

According to the survey:

• Nearly 80% of Canadians believe “as a whole, Canadians have too much debt”
• More than 70% believe “low interest rates have meant that a lot of Canadians became homeowners over the past few years who should probably not be homeowners”
• “Many Canadians believe that other people have taken on too much debt or have bought homes for which they are unprepared. But, when responses about their own situations are aggregated, most believe that they have been responsible”

On the flip side:

• Popular opinion is that “real estate in Canada is a good long-term investment”
• Over 70% also feel “mortgage debt is good debt”
• “Data on mortgage arrears indicates that there are very few Canadians who are not meeting their mortgage obligations”

Reducing debt

Interestingly, close to 90% of borrowers expect to considerably shorten their amortization period, and in the last year:

• “36% of mortgage holders have made additional voluntary efforts to accelerate repayment of their mortgages during the past year”
• “This includes 16% who increased their monthly payments, 17% who made lump sum payments, and 5% who increased the frequency of their payments”
•  “Some (about 6%) of these mortgage holders made more than one of these additional efforts”

Trending variable

The report also reflected a shift towards variable mortgage rates, with some mortgage holders refinancing to take advantage of low rates and mortgage renewers and newbies increasingly opting for variable. For the better part of the last year the spread between fixed and variable rates was substantial and there was an expectation that mortgage rates would stay low for a prolonged period.

• “15% refinanced early…  A further 12% considered refinancing early but decided not to”
• “Fixed rate mortgages remain most popular (60%)”
• “A significant minority (31%) are variable and adjustable rate mortgages”
• “For mortgages originated or renewed during the past year, an increased share (37%) has variable or adjustable rates”

Shopping around

Some noteworthy points were raised in the report in regards to mortgage providers and the importance of comparing mortgage rates.

• “Among those who renewed or refinanced an existing mortgage during the past 12months, 21% changed lenders and 79% remained with the same lender. The rate of switching has edged upwards – two years ago it was 12%”
• Among borrowers who have taken out a new mortgage during the past year, 52% obtained the mortgage from a bank, 32% from a mortgage broker, and 16% from other sources”
• “During the past year, the average “posted” rate for 5-year fixed rate mortgages was 5.38%. Discounted rates are estimated at an average of 3.92%, implying an average discount of 1.46 points”
• “For those who have financed a new mortgage during the past year, the average interest rate is 3.30%; for those who renewed or refinanced a mortgage during the year, the average rate is 3.39%”

The fact that new borrowers received lower rate offers may reflect the fact that most mortgage renewers stay with their existing lender and do not shop around.

Risks and mitigation

The report raised some concerns with how vulnerable some Canadians would be to higher mortgage rates, but also identified factors that mitigate these risks.

• “There is a sizable minority (12%) who would be challenged by rate rises of less than 1%”
• “8% indicate they cannot afford an increase of $100 per month or more”

At the same time, the report points out that Canadians have substantial amounts of housing equity and three-quarters have either fixed rate or combination mortgages, making them less vulnerable to rate hikes.