As Canadians weather economic uncertainty, a beacon of their strength is the considerable amount of equity they have in their properties, according to a report by the Canadian Association of Accredited Mortgage Professionals (CAAMP).
New challenges, such as budgeting for mortgage payments, are emerging, yet housing affordability has dramatically improved due to lower interest rates and price reductions.
The report is authored by CAAMP chief economist Will Dunning and based on information gathered by Maritz Research Canada in an online survey conducted in March.
Over 40 per cent of all mortgage holders have at least 50 per cent of the value of their homes in equity, and of all Canadian homeowners, which includes those without mortgages, 65 per cent hold at least half the value of their properties, said CAAMP. Only two per cent of mortgage holders have negative home equity, meaning the value of the mortgage exceeds the value of the home.
During the past year, 15 per cent of mortgage holders took equity out of their homes, representing a national total of $34 billion. Over half (57 per cent) used these funds for debt repayment or consolidation amounting to $12.5 billion.
“CAAMP’s report demonstrates that homeowners have solid equity positions and, although facing financial uncertainties, most Canadians have the ability to deal with temporary market fluctuations and reductions in personal income,” said Jim Murphy, president and CEO of CAAMP. “With only a very small number at risk of not being able to pay or refinance their mortgages, our overall market is very strong.”
There is no doubt that the current economic backdrop means increased financial challenges for Canadians, says CAAMP. Job loss is a major risk factor for homeowners and 18 per cent of those surveyed indicated an individual in their household had lost a job in the past six months.
The economy looms large when people consider buying a home. Despite the fact that 55 per cent say now is a good time to buy, up almost 20 percentage points from fall 2008, only four per cent of homeowners and six per cent of non-owners actually say they anticipate buying – about the same number as last fall.
Low and flexible interest rates plus longer terms are adding buoyancy to the mortgage market. Mortgage holders are “extremely successful” negotiating their interest rates, knocking off an average of 1.68 per cent from the posted rate, says the association. Three-quarters of those who renewed their mortgage in the past year had their interest rate reduced. On average, renewals resulted in interest rate reductions of almost one full per cent. Three-quarters of Canadian borrowers are also likely to see reductions in their interest rates at their next renewal.
“While many Canadians are experiencing mortgage-related challenges, these issues are much less significant than the problems in the American market,” says Dunning. “We are not seeing the dramatic mortgage rate resets or panic selling that occurred in the United States, and Canadian mortgage lenders and insurers are demonstrating a willingness to work with those who encounter financial difficulties. These are good signs for the health of the market.”
The survey says 46 per cent of new mortgages taken out in the past year were secured through mortgage brokers. Sixty-one per cent of mortgage renewals occurred with the major banks.
Based on current housing market forecasts, CAAMP says the outstanding volume of residential mortgage credit is forecast to expand by close to $70 billion in both 2009 and 2010, growing at a rate of 7.6 per cent in 2009 and seven per cent in 2010, although the growth rate has decreased from 10.4 per cent in 2008. Mortgage credit is expected to surpass $1 trillion about mid-2010. The volume of annual approvals may fall to about $150 billion in 2009 and $160 billion in 2010, down from totals that exceeded $200 billon per year in 2007 and 2008.