The seventh annual State of the Residential Mortgage Market report, conducted by CAAMP (the Canadian Association of Accredited Mortgage Professionals) has found that consumers are worried about debt. The report, which included survey data from 2,000 Canadians (half of which were homeowners), asked participants to what extent they agree with various statements based on a 10-point scale: a response of 10 indicated complete agreement. The statement, “as a whole, Canadians have too much debt,” received the the highest degree of agreement, scoring an average rating of 7.98 out of 10.
While debt remains a major cause of concern, there is a widespread opinion that Canadian real estate is a good long term investment. Consumers still feel that a mortgage is a “good debt” and very few regret taking on the size of mortgage that they did. However, there is still a very big perception that Canadian homeowners are largely unprepared for the financial obligations of purchasing a home.
Problematic Perceptions
According the survey, many Canadians believer that other people have taken on too much debt or have purchased a home that they are not financially capable of caring for. When it comes to assessing personal financial commitments, however, the vast majority of survey participants insisted that they were acting in a responsible manner.
Luckily, actual borrowing behaviour is more in line with the latter, personal assessment. Data on mortgage arrears indicates that most Canadians are meeting their mortgage requirements. Information from the CAAMP report shows that most homeowners are focused on paying off their mortgage quickly; in fact, a great deal are on course to pay of their mortgages considerably sooner than they are required to. As such, Canadian mortgage borrowers are also capable of handling potential increases in their rates.
Mortgage Data: The Year in Review
Fixed rate mortgages remained a popular choice in 2011 (60%). With that being said, variable rate mortgages became an increasingly popular choice for renewals this year. There are a variety of factors believed to have contributed to this shift, including a large spread between fixed and variable rate mortgages (nearly 2%), and expectations that rates will remain low well into 2012.
Survey data further indicates that roughly 10% of mortgage borrowers took equity out of their home during the past year. The most common use for these funds? Debt consolidation and repayment. Nearly $11 billion of an estimated $28.5 billion dollars in equity is believed to have been used to help tackle consumer debt. Home renovations accounted for about $5 billion of equity spending, while educational spending accounted for roughly $6 billion.
A great deal of Canadians chose to amortize their home purchase for a period of more than 25 years (22%). Nearly 38% of these homeowners are first-time home or condo buyers. While banks remained the main source of funding, cornering 52% of the mortgage market, mortgage brokers continue to gain ground. In 2011, 32% of lending agreements relied on the expertise of a knowledgable broker.
Residential Mortgage Lending Outlook for 2012
While the Canadian housing market has stabilized over the past year, the growth is slower than pre-recession levels. With that being said, moderate but steady job growth is expected to help bolster the housing market into 2012. As such, housing prices are expected to rise slowly; the average forecast is for about a 1% growth in 2012, which is down considerably from the 7.7% growth levels expected in 2011.
Of course, there’s always uncertainty. Job loss and cuts remain a major risk factor; however, worries of mortgage increases are unfounded. CAAMP research shows that this is a negligible risk factor in Canada for 2012.
Mortgage customers can review the entire Annual State of the Residential Mortgage Market in Canada on the CAAMP website. Are you worried about the amount of debt Canadians are carrying? Share your thoughts below.