The Canadian Association for Accredited Mortgage Professionals (CAAMP) has good and some not so good news about the residential mortgage market.
The Average Price in Canada is Skewed
Each month we hear about the Canadian average home price and how it continues to rise. In the last three years, average home prices in Canada have increased by considerably more than the overall inflation rate. Here are a few reasons that CAAMP gives:
Resale activity has been most pronounced in three major markets, resulting in price pressures. In Toronto and Vancouver this is due to lack of supply and shortages of development ready land; in Calgary it’s due to strong job creation.
High activity and price pressures in these markets account for most of the increase in the average price. It counteracts the slower growth being experienced in other Canadian communities.
To bring this point home, the study points out that, “As of April 2014, the average price shows a year-over-year rise of 8.2% for the major markets versus 2.9% for the rest of Canada.”
Effects of 2012 Changes to Mortgage Rules
The report further points out that as of July 2012, the 4th round of tightened mortgages rules came into effect. These changes, meant to curb demand in major markets, have had a subdued effect in much of the rest of Canada. The government, the report recommends, should address the supply side of the problem in major centres; targeting demand overall has had a downward result on other communities.
In turn, this attempt to curb housing demand can moderate slow job creation.
Other Results and Good News from the Study
- 74% of new mortgage are fixed rate mortgages.
- Canadians are accelerating paying off their mortgage sooner. Mortgages over the last 2 decades have been paid off by about 1/3 sooner than their original amortization. To pay out their mortgage faster, current borrower are increasing their monthly payment and making lump sum payments.
- The average interest rate on mortgages is 3.24%.
- When interest rates inevitably rise, and because borrowers and lenders have been prudent, CAAMP believes there is “substantial room to absorb higher interest rates.”
- More than 80% of Canadian homeowners have 25% or more equity in their homes, and about 11% took equity out of their homes in the past year.
- Canadians believe that mortgage debt is good debt.
For a copy of the full report visit: www.caamp.org.