2013 Mortgage stats, Where do you fit in?

16% of homes purchased in 2013 had amortizations over 25 years
8% of respondents believe the housing bubble will burst within the next five years
82% of new mortgages for homes purchased in 2013 were fixed rate mortgages
2% of buyers with less than 20% down chose a variable rate mortgage
40% of new mortgages in 2013 were obtained from a mortgage broker.
70% of households with mortgages have 25% or more equity
57% of 2013 homebuyers were first-time buyers
84% of mortgages on homes purchased in 2013 had an original amortization of 25 years or less
16% of borrowers  increased the amount of their payments in the past year - the average monthly increase was  $400
17% of borrowers  made a lump sum payment - the average amount was $14,000

OTHER HIGHLIGHTS

43% of current mortgage holders  consulted a mortgage broker about getting a new mortgage
68% of respondents agreed their mortgages are "good debt"

INTEREST RATES

3.23% is the average mortgage interest rate for mortgages on homes purchased in 2013
3.20% is the average mortgage interest rate for mortgages renewed in 2013, which averaged 0.82 percentage point lower than prior to their renewal

EQUITY TAKE-OUT

11%  of homeowners took equity out of their home in the past year with $57,000 the average amount
$59 billion is the estimated amount of total equity take-out in the past year
$16.6 billion was used for debt consolidation and repayment
$15.1 billion was used for investments
$12.3 billion was used for home renovations

REAL ESTATE/MORTGAGE MARKET

9.52 million: The number of homeowners in Canada
4.28 million: The number of renters in Canada
5.58 million: The number of homeowners with mortgages (who may also have a home equity line of credit (HELOC))
3.94 million: The number of homeowners who are mortgage-free
2.3 million: Number of total homeowners who have HELOCs

This Week in Economc and Real Estate News

Two of Canada's banks issued economic forecasts last week and each contained predictions which impact the housing market.

RBC's Home Re-Sale and Price Forecast calls for re-sale activity to be flat at just over 453,000 units for this year and through 2014. RBC says that average Canadian home prices will appreciate at 2.8% annually by the end of the year but 2014 will see only a 0.5% increase in average prices.

TD Bank's Long Term Economic Forecast looks much further forward - all the way to 2017. It predicts that Canada's economy, lead by exports, will post growth rates of 2.4% in 2014 and 2.6% in 2015.

The Bank of Canada's overnight rate, now at 1%, is forecast to hit 1.5% by the end of 2014, 2% in 2015 and 3.25% by the end of 2017.

So expect the variable rate to finally start rising next year, but in a very controlled slow fashion. 

No crash in store for Canadian housing market: Scotiabank

A slowdown in Canada’s housing market will continue through 2013 and years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.  The report by Canada’s third-largest bank said that home sales have already dropped more than 10% from spring 2012, with prices leveling off but not yet falling except in particularly hard-hit markets.

Housing, which slowed but did not crash as a result of the global financial crisis, helped sustain Canada’s economy through much of 2010 to 2012 but is now starting to slide just as the U.S. housing sector has begun a clear recovery.

Scotiabank said the housing slowdown will trim a quarter of a percentage point from Canada’s economic growth in 2013 and 2014, while the U.S. housing recovery is adding half a percentage point to annual growth rates there.

While Canadian home sales may continue to slump, the report said, prices will likely remain above year-ago levels until at least the second half of 2013, and will not drop as dramatically as they did in the United States.

Bank of Canada keeps rate unchanged

As expected, the Bank of Canada left its benchmark overnight rate unchanged at 1.00%.  The Bank described the global economic outlook as “broadly consistent” with its projection. The recent sequestration cuts in the U.S. were cited as a factor making the fiscal drag on the U.S. more front-loaded, but still in-line with its two year outlook for the U.S. economy.

On the domestic front, the Bank recognized the continued slack in the Canadian economy with the weak Q4 GDP reading and current soft inflation environment, but “expects growth in Canada to pick up through 2013, supported by modest growth in household spending combined with a recovery in exports and solid business investment.”  The outlook for inflation was subdued, with core and CPI inflation expected to remain at their current low levels in the “near term, before rising gradually to reach 2 per cent over the projection horizon”  The Bank also recognized the healthier evolution of household credit and expects further moderation in this regard.

Key Implications

Given the current economic environment – both globally and domestically – today’s interest rate decision came in as expected.  The Bank highlighted the soft numbers that were recorded in recent months. Indeed, Q4 real GDP (+0.6% annualized) released last week point to the economy currently running in neutral to finish 2012. The weak hand-off from December (-0.2%, m/m) also means that 2013 will not have a rolling start either. These readings suggest that there exists downside risk to the Bank’s 2.3% real GDP forecast in 2013Q1.

Persistent weakness in inflation – January’s reading marked the tenth consecutive month that inflation has come in below the Bank’s 2.0% target – also points to the Bank remaining on the sidelines until 2014 when it comes to interest rate moves.

Have we hit the bottom of the slump?

Canada’s cooling housing market may have some people re-thinking their desire to buy. Despite dropping sales, prices are holding up. Nationally, Canada’s housing market closed-out 2012 with a 17% decline in sales in December, but a 1.6% increase in the average price.

More than half a year has passed since the last round of mortgage rule changes by the federal government and trends are starting to emerge. Year-end reports from the real estate industry and CMHC project a slower market for 2013.

But bank economists are now saying the slump has pretty much hit bottom and the effects of the changes have been priced in.

And there has been one significant change since all of the end-of-the-year prognostication: the Bank of Canada has reversed its stance on interest rates. After months of warning that rates will be going up the Bank now says economic conditions mean increases are not imminent.

This change has the potential to halt the slide in the housing market and will likely re-establish some stability, at least for the rest of 2013.

Bank of Canada delays rate hike

OTTAWA - The Bank of Canada held its overnight interest rate at 1% on Wednesday but dramatically revised its projections to say any hike would be further away than previously thought, because of excess capacity, soft inflation and stabilizing household debt.

“While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2%inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated,” said the central bank, led by Mark Carney.

Expect mortgage rates as well as lines of credit to remain low for the coming year at least.

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Rate Increase in 2013?

Speculation about the Bank of Canada’s interest rate policy is creeping back into the news again. There are suggestions the benchmark rate will be on its way up by the end of this year and the Central Bank isn’t doing anything to quell those notions.

The latest global outlook from one of Canada’s “Big-5” banks points to on-going improvements in the U.S. economy as the driving force behind an increase of interest rates by the end of 2013. The outlook forecasts an increase as much as a half-a-percent (50 basis-points) provided the Canadian economy maintains the growth it showed at the end of 2012.

The Bank of Canada’s Senior Deputy Governor Tiff Macklem reaffirmed the central bank’s desire to see rates increase during an appearance less than a week ago. Macklem, who’s pegged as the best bet to replace exiting BoC governor Mark Carney, said the Central Bank’s low interest rate strategy “is reaching its limits and rising levels of household indebtedness have created vulnerability.”

The Bank of Canada’s next interest rate announcement is set for January 23rd. It is expected to hold the rate at 1%.