The Canadian Mortgage Market

September 30, 2010 by Admin

The 2010 fiscal year began at a time of uncertainty and anxiety. In the spring of 2009, the Canadian economy and housing market were suffering the effects of a sharp recession. Employment had fallen by more than 350,000, resale market activity had fallen by almost 40% from peak levels, and housing values had fallen by an estimated 9%.

However, confidence was beginning to improve, as was shown by CAAIMP’s spring 2009 consumer survey report, The Canadian Residential Mortgage Market During Challenging Times. This survey found that 55% of Canadians thought it was a good time to buy a home and just 20% gave negative responses.

Housing activity strengthened rapidly during the second half of 2009, and resales reached all-time record levels during the fourth quarter (in terms of both the number of units sold and the total dollar value of sales). Simultaneously, housing values strengthened. The drops in values were more than recovered, as the average sale price in Canada reached record levels late in the year.

The rapid rebound of housing demand, and the recovery of mortgage activity that followed, can be attributed to several factors, especially:

> The employment situation started to improve and so did consumer confidence;

> Demand that should have happened during the recession but didn’t (when consumers froze) was released;

> Mortgage interest rates fell: during the second half of 2009, typical rates for five-year mortgages (after lender discounts) were about 4.25%, substantially lower than the 5.4% average seen over the past decade. For variable rate mortgages, rates fell steadily, averaging less than 2.5% during the second half of the year, and falling below 2% during the first half of 2010.

On top of this, there were changes to mortgage insurance criteria (especially calculation of costs for variable rate mortgages) that will reduce numbers of qualified buyers. The rule changes caused some buyers to accelerate their decisions, borrowing demand from the future.