Quite different up here.. but certainly looser than when I bought my first home..
June 4, 2008
Home ownership at record levels; Cdn mortgage debt headed to $1-trillion mark
By Colin Perkel, THE CANADIAN PRESS
TORONTO - Never before have so many Canadians owned homes. And never before have they owed so much for the privilege.
Interest rates at or near historical lows combined with low unemployment and recent changes that allow people to buy houses with less money down and pay off mortgages over longer periods resulted in 68.4 per cent of Canadians in the housing market in 2006.
That's up from 65.8 per cent in 2001 and 60 per cent in 1971, according to the latest Statistics Canada data.
The increase comes despite the fact that the cost of housing in many cities across the country has gone through the roof, outstripping inflation by far, while median incomes have essentially flatlined.
"Low mortgage rates have helped offset much, but not all, of the impact of rising house prices in recent years on mortgage debt-service costs," said Bertrand Recher, a senior economist with Canada Housing and Mortgage Corp.
The overall result has been a small increase in the percentage of Canadian homeowners who spend more than 30 per cent of their gross income on shelter costs, according to Statistics Canada census data.
But latest CMHC figures show a sharper spike in mortgage-carrying costs in terms of after-tax income.
In 2007, average household spending on monthly mortgage payments had reached 37 per cent of after-tax income, up from 32 per cent in 2006.
"That's significant - mortgage carrying costs are increasing," said Recher.
"This burden is heavier on the shoulders of first-time buyers because they don't have the equity."
Most analysts, however, see little comparison between the Canadian housing market and its American counterpart, where hundreds of thousands of homeowners suddenly found themselves in way over their heads, creating a financial meltdown.
Canadian financial institutions jealously guard the number of mortgage defaults they endure. But among the country's big banks, only about 0.27 per cent of homeowners were three months or more in arrears on their payments.
"Anecdotally, we are not seeing any rise in arrears or defaults across the country," said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, an organization that speaks for mortgage lenders.
"Canadian underwriting standards by lenders and mortgage insurers are much more thorough than they are in the United States. Canadian lenders are much more conservative."
One key factor in the rise of home ownership is the relatively new option of mortgages amortized over 40 years.
Paying off loans for homes over a longer period means much higher total interest costs, but lower ongoing monthly payments. The effect is increased affordability. Growth in such long-term mortgages has been nothing short of dramatic, figures show.
Between the fall of 2006 and fall 2007, 37 per cent of all mortgages carried amortizations longer than 25 years, up from nine per cent in the preceding period.
"Clearly they're very popular," said Murphy, adding that not only first-time buyers are opting for the new choice.
One real estate analyst who disagrees with the rosy assessment of the Canadian market is Liberal MP Garth Turner, who argues too many people, especially younger buyers, are taking on too much debt to buy into the housing game.
Low interest rates coupled with 40-year amortizations and negligible downpayments might make it easier to buy higher priced homes, but it's also leaving buyers vulnerable, Turner says.
"The inevitable conclusion is that the current Canadian real estate market is floating on a sea of unrepayable, and perhaps unserviceable, debt," Turner maintains in his book, "Greater Fool."
Collectively, it is a lot of debt.
In total, Canadians owe an amount fast approaching $850 billion on their homes, more than double what it was a decade ago, with percentage growth in double digits in recent years.
If trends continue as expected, the value of all outstanding mortgages will surpass the $1-trillion mark sometime toward the end of next year.
The federal government is keeping a close eye on the developments, according to Finance Minister Jim Flaherty.
"We have been monitoring the mortgage market, as we do, and we've seen a trend toward longer amortizations and smaller down payments, and that is a matter of some concern," Flaherty said recently.
"We're continuing to watch that."
Mortgage insurers, who take care of defaults, have also tightened their criteria.
Still, any concerns over the situation appear, at least for the moment, to be outweighed by more positive views.
Overall economic conditions remain healthy in Canada, with unemployment close to historical lows, Recher noted.
In addition, the forecast is for the rapid growth in house prices to moderate substantially while interest rates are expected to remain relatively stable, at least over the next year or two.
Adrienne Warren, a senior economist and manager with Scotiabank, said easier access to mortgages certainly make the economy more vulnerable, but it would take a sharp spike in interest rates - she estimated five percentage points - coupled with a general economic downturn to see people in danger of losing their homes.
"Given that the lending criteria has been relatively benign in terms of growth and inflation and interest rates, I'm not really overly concerned with this one segment of the market."
One group blissfully unconcerned about rising carrying costs are those aging baby boomers who have paid off their mortgages, a group that has grown in recent years.
More than 42 per cent of all homeowners hold no mortgage at all, according to Statistics Canada.
Many longtime owners have taken their equity and downsized to condos, joining the flood of first-time buyers who have gained their first toe-hold in the world of home ownership by entering the relatively affordable condo market.
About 10 per cent of households are now in condos, a tripling in 25 years.
"There's been quite an increase . . . in the percentage of owner-households that are in condos," said Willa Rea, senior analyst with Statistics Canada.
"There's a good deal of young people buying in and becoming homeowners. We've seen quite an increase there."
While shelter costs for homeowners have risen, they remain higher than those for renters. Roughly 40 per cent of renters spend 30 per cent or more of their income on shelter.
"That hasn't changed," said Rea. "It's pretty stable there."
The analysis released Wednesday is based on census data collected more than two years ago. The next census will be taken in 2011.
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A few observations:
We balked @ ? 25% debt service when we bought our first home @ the start of the mid to late 80s RE boom up here.. and ended up less than that..
When we bought our first home the biggest thing was 'accelerated' mortgages.. ie' divide the monthly by 4 and pay that weekly... effectively making 13 monthlies each year.. and no penalty extra payment once yearly, and increase your payment by 10-15% each year with the extra going to principle of course.. All gimmicks to encourage you to pay it off faster.. Our mortgages were 25 years or less amortisation... now we have up to 40..
I paid 219K for my present home in 93 (more than double my first). The previous owners paid 320K !!. Presently with the market a little cooler and balanced my home is about 410K.. Not exactly a huge bubble comparatively but it could go down a fair bit..
Scotia Bank aired ads ' 'You are richer than you think..' No money down mortgages.. I haven't seen one in a while though
With 42% of Canadian home owners mortgage free... I'm not very special but that sure explains a lot of the continued big ticket spending I see up here.. I've only recently joined the working for toys crowd.. :O)
Garth Turner is not my favourite guy but he does know his Canadian real estate.. It's an area where I give his opinion some extra weight.. (He was Conservative Revenue minister in the short lived Kim Campbell government) and now he's a Liberal MP.. LOL
And we have no mortgage interest deductability.
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