Mortgage Market Overview. Will Dunning CAAMP Chief Economist May 30, 2013

Transcription

1 Mortgage Market Overview Will Dunning CAAMP Chief Economist May 30, 2013

2 My Agenda Economic and housing market overview Canada and 4 largest provinces CAAMP s May 2013 report on the mortgage market Continued very positive behaviour Greatest risk is government policy

3 The Economic Big Picture Recovery in US (jobs and house prices) Rolling crises in Europe Impacts on Canada Our position in the world economy Regional variations Importance of housing wealth Risks from the housing market pro-cyclical regulation

4 Economic and Housing Market Trends

5 Employment in Canada 18 M illions Em ployed Source: Statistics Canada

6 Employment Rate for Canada % of Adults Em ployed Source: Statistics Canada

7 US versus Canada Employment Rate US Canada Per Cent Source: US BLS / Statistics Canada

8 Employment Rate for Canada 64 % of Adults Em ployed Source: Statistics Canada

9 Economic Drivers Are Mixed and Volatile Factor Wealth Effect Housing Wealth Effect Stocks Interest Rates Canadian Dollar Commodity Prices Impact Turning from Positive to Neutral Highly Uncertain Strongly Positive Strongly Negative Positive for Producers Negative for Consumers

10 Volatile Stock Markets 15,000 12,000 TSX Index 9,000 6,000 3, Source: Statistics Canada

11 Canadian Dollar Remains a Negative Factor $1.10 $ US / $ C anada $1.00 $0.90 $0.80 $0.70 $ Source: Bank of Canada

12 High Commodity Prices -Uncertainty 2.00 Inflation-A djusted Source: Statistics Canada

13 Canadian Housing Resales 9 Months of Weakened Activity ,000's Source: CREA

14 Canadian Resale Activity Per Adult 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% Source: CREA / StatsCan

15 Wealth Effect From House Values Probably Abating $400 $350 $ 1,000's $300 $250 $200 $ Source: CREA

16 Sales-to-Listings Ratio Points to Stable Prices 80% 70% 60% 50% 40% 30% Source: CREA

17 Housing Starts in Canada SAAR - 1,000s Source: CMHC

18 Housing Starts Trend in Canada SAAR - 1,000s Source: CMHC

19 Canadian Arrears Rate Substantial Recovery 1.00% Arrears Rate - % 0.80% 0.60% 0.40% 0.20% 0.00% Source: Canadian Bankers Association

20 4 Provinces

21 Employment Rates in 4 Provinces BC Ontario Alberta Quebec Source: StatsCan

22 Resale Activity (1,000s) in 4 Provinces BC Ontario Alberta Quebec Source: CREA

23 Resale Activity (Per Adult) in 4 Provinces 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% BC Ontario Alberta Quebec Source: CREA / StatsCan

24 Average Resale Prices (as an Index) in 4 Provinces BC Alberta Ontario Quebec Source: CREA StatsCan

25 Sales-to-Listings Ratios in 4 Provinces 100% 80% 60% 40% 20% 0% BC Alberta Ontario Quebec Balance Source: CREA

26 Housing Starts (1,000s) in 4 Provinces BC Ontario Alberta Quebec Source: CMHC

27 Housing Starts Trends in 4 Provinces BC Ontario Alberta Quebec Source: CMHC

28 Mortgage Arrears Rates in 4 Provinces 1.0% 0.8% 0.6% BC Alberta Ontario Quebec 0.4% 0.2% 0.0% Source: CBA

29 Change in the Canadian Mortgage Market May 2013

30 Annual Growth in Residential Mortgage Credit in Canada 14.0% 12.0% % Growth 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: Bank of Canada / Will Dunning

31 Consumer Survey

32 Typical Mortgage Rates (After Advertised Discounts) 8.0% 6.0% 5 Year Fixed Variable 4.0% 2.0% 0.0% The cost of interest rate insurance is negligible Source: Will Dunning Inc.

33 Mortgage Type Fixed Rate Mortgages Still Most Popular Purchase During 2012/13 Renewal or Refinance During 2012/13 All Mortgages Fixed Rate 85% 82% 69% Adjustable/ Variable 13% 13% 26% Combination 3% 5% 5%

34 Amortization Periods Amortization periods over 25 years have 20% of all mortgages. 25% for new mortgages initiated during 2012/13, including: years 22% years 3% For originations during 2010/11, 39% were extended amortization

35 Voluntary Extra Payments During past year, 15% increased regular payment (total $4 bn per year) Regular payments repay $60 bn per year 15% made lump sum payment ($10 bn); Plus, lump sums at time of full repayment = $ 3bn 10% increased frequency Recent buyers (2010 to present) more likely to make extra efforts: 18% increased payments ; 17% made lump sums. See table 2-6

36 Borrowers Expect to Repay Early All Mortgage Holders Purchase during 2012/13 Original Amortization Period Current Expected Period Expected Change /

37 Acceleration of Repayment Over past 2 decades, actual amortization has been 1/3rd shorter than contracted Recent buyers likely to pay off in same time frame as their parents generation

38 Broker Share Highest for New Mortgages Type of Activity During 2012/13 Broker Share New Mortgage 31% Renewal 21% All Mortgages 25%

39 Interest Rates Average across all mortgages 3.52% (3.64% last year) For renewers: rate fell for 80%, rose for 15%, unchanged for 5%. Average change minus 0.91% During discounts averaged 220 basis points (5-year terms, fixed rates) All have discount of at least 1.5 point

40 Housing Equity in Canada Average 67% equity 1% of owners may have negative equity > 83% have more than 25% equity 3.1 million owners have no housing debt

41 Equity Take-out 8% of all home owners took out equity Take-out averages $48,000 Total take-out of $39 billion

42 Uses of Equity Take-out Purpose To consolidate or pay down debt To renovate my house/condo To invest Education/purchases Other Share of $39 bn $ 4.7 bn $ 17.5bn $ 5.6 bn $ 8.6 bn $ 2.5bn

43 The Policy-Induced Slowdown 9 months showing negative impacts in resale market Housing starts beginning to adjust Average starts at 205 K during 2011/12. As of April starts have fallen to 175 K Potential to reach 150 K by late 2014 Reduced starts would cost 80,000 jobs Additional job losses due to lower resale activity Impact of slower house price growth on confidence and spending Possible impact of -150,000 jobs by mid 2015

44 Final Thoughts Canadians are comfortable with their mortgages and very well prepared for any rises in mortgage rates Deceleration of mortgage market growth In Canada, the biggest risk factor for the mortgage market is usually loss of ability to pay Now, the risk of a policy-induced housing market downturn

45 About Will Dunning In addition to being Chief Economist for CAAMP, Will Dunning operates a consulting firm. Services include: Custom research on economics and housing markets. Briefings and presentations. Continuing education for AMPs. Contact Will Dunning: wdunning@sympatico.ca Website: