General News

Mortgage Market Statistics

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The Mortgage Market:

  • 6.03 million: The number of homeowners with mortgages (out of a total of 9.8 million homeowners in Canada)
  • 1.6 million: The number of Home Equity Line of Credit (HELOC) holders
  • 11%: The percentage drop in resale activity compared to 2017
    • Resale activity is down 15% from the all-time record set in 2016.

Mortgage Types and Amortization Periods

  • 68%: Percentage of mortgages in Canada that have fixed interest rates (The percentage is the same for mortgages taken out in 2018)
  • 27%: Percentage of mortgages that have variable or adjustable rates (30% for mortgages taken out in 2018)
  • 5%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages (2% for purchases in 2018)
  • 89%: Percentage of mortgages with an amortization period of 25 years or less (84% for homes purchased between 2015 and 2018)
  • 11%: Percentage with extended amortizations of more than 25 years (16% for recent purchases between 2015 and 2018)
  • 22.2 years: The average amortization period

Actions that Accelerate Repayment

  • ~33%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (unchanged from recent years)
  • Among all mortgage holders:
    • 15% made a lump-sum payment (the average payment was $22,100)
    • 16% increased the amount of their payment (the average amount was $450 more a month)
    • 8% increased payment frequency

Mortgage Sources

  • 62%: Percentage of borrowers who took out a new mortgage during 2017 or 2018 who obtained the mortgage from a Canadian bank
  • 28%: Percentage of recent mortgages that were arranged by a mortgage broker
    • This is down substantially from 39% reported in the previous report in 2017 (and 43% in 2016; 42% in 2015). While Dunning says the latest 2018 figure could be the result of a statistical anomaly, he also surmises that broker share may in fact be down. “The lending environment has become more challenging for brokers, especially since changes to mortgage insurance regulations are making it much more difficult for small lenders to raise funds via mortgage-backed securities,” he wrote. “It also appears that some of the large banks are becoming less reliant on the broker channel.”
  • 5%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 7% of all mortgages)

Interest Rates

  • 3.09%: The average mortgage interest rate in Canada
    • This is up from the 2.96% average recorded in 2017
  • 3.31%: The average interest rate for mortgages on homes purchased during 2018
  • 3.28%: The average rate for mortgages renewed in 2018
  • 68%: Of those who renewed in 2018, percentage who saw their interest rate rise
    • Among all borrowers who renewed in 2017, their rates dropped an average of 0.19%
  • 3.40%: The average actual rate for a 5-year fixed mortgage in 2018, about two percentage points lower than the posted rate, which averaged 5.26%

Mortgage Arrears

  • 0.24%: The current mortgage arrears rate in Canada (as of September 2018)
    • “The arrears rate… ( 1-in-424 borrowers)…is very low in historic terms,” Dunning wrote.

Equity

  • 74%: The average home equity of Canadian homeowners, as a percentage of home value
  • 4%: The percentage of mortgage-holders with less than 15% home equity.
  • 56%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
  • 58%: The average equity ratio for owners with both a mortgage and a HELOC
  • 80%: The equity ratio for those without a mortgage but with a HELOC
  • 92%: Percentage of homeowners who have 25% or more equity in their homes
  • 50%: Among recent buyers who bought their home from 2015 to 2018, the percentage with 25% or more equity in their homes

Equity Takeout

  • 10% (960,000): Percentage of homeowners who took equity out of their home in the past year (up slightly from 9% in 2017)
  • $74,000: The average amount of equity taken out (up substantially from $54,500 in 2017)
  • $72 billion: The total equity takeout over the past year (up from $47 billion in 2017)
  • $38 billion was via mortgages and $34 billion was via HELOCs (the HELOC portion is up from $17 billion in 2016/17)
  • Most common uses for the funds include:
    • $23.8 billion: For investments
    • $17 billion: For home renovation and repair
      • 55% of homeowners have done some kind of renovation at some point. 27% renovated between 2015 and 2018 with an average spend of $41,000.
    • $16.4 billion: For debt consolidation and repayment
    • $8.6 billion: For purchases
    • $6.2 billion): For “other” purposes
    • Equity takeout was most common among homeowners who purchased their home during 2000 to 2004

Sources of Down payments

  • 20%: The average down payment made by first-time buyers in recent years, as a percentage of home price
  • The top sources of these down payment funds for all first-time buyers:
    • 52%: Personal savings (vs. 45% for those who purchased between 2015 and 2019)
    • 20%: Funds from parents or other family members (vs. 16% over the last four years)
    • 19%: Loan from a financial institution
    • 9%: Withdrawal from RRSP (this has been trending down over the last decade)
  • 98 weeks: The amount of working time at the average wage needed to amass a 20% down payment on an average-priced home
    • This is down from 105 weeks in 2017, but nearly double the figure from the 1990s.

Homeownership as “Forced Saving”

  • ~43%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
    • Down from ~50% in 2017, but up from 25% 10 years ago
    • Dunning notes that rapid repayment of principal means that “once the mortgage loan is made, risk diminishes rapidly”
    • He added that “net cost” of homeownership, “which should include interest costs, but not the principal repayment,” is low in historic terms when considering incomes and relative to the cost of renting equivalent accommodations. “This goes a long way to explaining the continued strength of housing activity in Canada, despite rapid growth of house prices,” Dunning writes.

A Falling Homeownership Rate

  • 67.8%: The homeownership rate in Canada in 2016 (the latest data available)
    • Down from 69% in 2011

Consumer Sentiment

  • 90%: The percentage of homeowners who are happy with their decision to buy a home
  • 7%: Of those who regret their decision to buy, the regret pertains to the particular property purchased
  • Just 4% regret their decision to buy in general

Outlook for the Mortgage Market

  • Data on housing starts suggests housing completions in 2019 will decrease slightly compared to 2018. “The data on housing starts tells us that housing completions in 2019 will be slightly lower than in 2018, but will still be at a level that results in a significant requirement for new financing,” Dunning writes.
  • “Another factor in the past has been that low interest rates mean that consumers pay less for interest and, therefore, are able to pay off principal more rapidly,” he adds. “Recent rises in interest rates are resulting in a slight reduction in the ability to make additional repayment efforts, and this will tend to fractionally raise the growth rate for outstanding mortgage principals.”
  • 3.5%: The current year-over-year rate of mortgage credit growth (as of September 2018)
    • Vs. an average rate of 7.3% per year over the past 12 years
    • Dunning expects outstanding mortgage credit to rise to $1.60 trillion by the end of 2019, from $1.55 trillion at the end of 2018

Survey details: This report was compiled based on online responses compiled in November 2018 from 2,023 Canadians, including homeowners with mortgages, homeowners without mortgages, renters and those living with family.

Source: Canadian Mortgage Trends

Why Real Estate Can Build You Consistent Wealth

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If you lived through the recent real estate and economic recessions, the very headline of this article might cause you some emotional pain. Less than ten years ago, the country was swept with an economic crisis the likes of which our generation had never seen. I personally remember driving down the street in California’s Central Valley and seeing “for sale” signs on practically one of every four houses. It felt like the market would never recover. Fast forward a few short years and now massive wealth is being built through real estate—often by average Joes.

Cash Flow

Cash flow is the money you have left over from the rent you’ve collected after all expenses have been paid. Most real estate has expenses such as a mortgage, property taxes, insurance, maintenance, and property management fees. When you buy a property that pulls in more rent each month than the expenses you carry to own it, your cash flow is positive.

In the majority of investments (stocks, art, jewelry, bitcoin, etc.), you are hoping to buy something that will appreciate in value, then sell it later for a profit. In some forms of investing (buying a poorly run business, for example), you may be buying something that produces income and hoping to improve that asset’s performance in order to increase its value. For most, this involves too much work and is undesirable. What we are left with is the subconscious understanding that to “invest” is to buy something you believe will be worth more later. If this is based on sound principles, it can work. If it’s not, it’s really more like gambling.

Those buying properties solely because prices were climbing and for no other reason have one exit strategy: sell later. They also only have one way to be successful: hope the property continues to appreciate. Any outcome other than these two is virtually guaranteed to lose money. During the crisis, when the music stopped and the market quit climbing, many of these so called “investors” lost their shirts. Real estate in general took a black eye, but was it real estate’s fault?

Wise investors don’t bet on appreciation. They purchase properties on a sound judgement that the property will generate more income than it costs to own. For these folks, who “cash flow” positively, they don’t care what the market does. If prices drop, they are safe. If prices rise, they have more options.

Appreciation

That said, appreciation, or the rising of home prices over time, is how the majority of wealth is built in real estate. This is the “home run” you hear of when people make a large windfall of money. While prices fluctuate, over the long run real estate values have always gone up, always, and there is no reason to think that is going to change.

One thing to consider when it comes to real estate appreciation affecting your ROI is the fact that appreciation combined with leverage offers huge returns. If you buy a property for $200,000 and it appreciates to $220,000, your property had made you a 10% return. However, you likely didn’t pay cash for the property and instead used the bank’s money. If you consider that you may have put 10% down ($20,000), you actually have doubled your investment, a 100% return.

Depreciation

Even though the name can be deceiving, depreciation is not the value of real estate dropping. It is actually a tax term describing your ability to write off part of the value of the asset itself every year. This significantly reduces the tax burden on the money you do make, giving you one more reason real estate protects your wealth while growing it.

Each year, on the residential real estate you have invested in, you can write off 1/27.5 of the properties value against the income you’ve generated. So for a house you bought for $200,000, you would divide that number by 27.5 to get $7,017. This is the amount you could write off the cash flow you earned for the year from that property. Many times, this is more than the entire cash flow and you can avoid taxes completely.

You should consult a CPA for the details of this tax benefit, but the basic idea is that the government considers property you buy to be slowly wearing down over time, and much like equipment for a business you own, you’re allowed to write off that wear and tear. Not a bad deal to own a property that makes you money, can increase in value, and also shelters you from taxes on the money you make.

One caveat is this tax exemption does not apply to primary residences. Rental property tax is sheltered because it’s considered a business where you’re able to write off your expenses. This isn’t the case if you use the property as your primary residence, so owning investment property gives you an advantage here.

Leverage

If cash flow and rental income is my favorite part of owning real estate, leverage is a close second. By nature, real estate is one of the easiest assets to leverage I have ever come across—maybe the easiest. Not only is it easy to leverage the financing of it, but the terms are incredible compared to any other kind of loan. Interest rates are currently below 5%, down payments can be 20% or less, and loans are routinely amortized over 30-year periods. What else can you invest in using financing with terms like that?

When done correctly, you can often buy real estate, improve it’s value, then refinance to recover 100% (or more) of your capital using what I call the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). In the circumstances where I don’t recover 100% of my capital, I often find myself with an ROI in the 50-90% range—all while adding equity to the property as well.

Leverage is such a critical part of real estate ownership that we often take it for granted. Where else can I borrow money from A (the bank), pay that loan back with money from B (the tenant), and keep the difference for myself? The to safe leverage is cash flow. If you make sure your property produces more income than it costs to own, the leverage itself doesn’t matter as much. Those who “over leverage” property are those who borrow so much against it that they lose money every month.

Loan Pay Down

When you take out a loan to buy real estate, you typically pay it back with the rent money from the tenants. One of the best parts of investing in real estate is the fact that not only are you cash flowing, but you’re also slowly paying down your loan balance with each payment to the bank.

In the beginning of these loans, the majority of the payment is going towards the interest of the loan, not the principle. This means you aren’t making much of a dent in the loan balance until you’ve had the loan for a significant period of time. With each new payment, a larger portion goes towards the principle instead of the interest.

After enough time passes, a good chunk of every payment comes off the loan balance, and wealth is created in addition to the monthly cash flow. The best part is, it’s your tenant paying this off for you, not yourself. Paying off your loan is another way real estate investing works to grow your wealth passively, with each payment taking you one step closer towards financial freedom.

Forced Equity

Forced equity is a term used to refer to the wealth that is created when an investor does work to a property to make it worth more. Unlike appreciation, where you are at the mercy of the market and factors you cannot control, forced equity allows investors an option where they can have a hand in increasing their properties value.

The most common form of forced equity is to buy a fixer-upper type property and improve its condition. Paying below market value for a property that needs upgrades, then adding appliances, new flooring, paint, etc. can be a great way to create wealth through real estate without much risk. While this is the most common method, it’s not the only one.

Many investors force equity by adding features like extra bedrooms, bathrooms or square footage. The key is to look for properties with less than the ideal number of amenities, and then add what they are lacking to create the most value.

Example of this would be adding a third or fourth bedroom to a property with only two, adding a second bathroom to a property with only one, or adding more square footage to a property with less than the surrounding houses. Opportunities like this can be found with a little bit of hard work diligence, and the resulting forced equity can make a big impact on your bottom line.

Inflation

It may not be talked about often enough, but inflation is a huge reason why real estate creates wealth so powerfully over time. When you consider all the benefits of investing in real estate, then include inflation, it’s amazing why more people aren’t taking the steps necessary to own as much real estate as they can.

Let’s take a moment to consider how inflation affects real estate prices. In general, overall, our money supply is worth less and less with each passing year. As the value of money decreases, the price of goods and services increases. Many of us take this for granted and don’t think about it much. It’s not uncommon to hear about how five cents used to buy a bottle of coke, or a hamburger could be purchased for a dime. While it’s easy to take for granted, it’s actually an incredibly powerful wealth-building tool when harnessed appropriately.

The key to using inflation to build wealth in real estate lies in the fact the majority of your big expenses (mortgage, property taxes) stay fixed for the majority of the time you own the property. When you combine this with rising rents and home values (due to inflation), you start to see big results. If we know it’s reasonable to expect inflation to continue, why not invest in an asset where this will benefit you?

Many people understand that real estate can create wealth, but not everyone understands why. I hope this shines a little light on the reasons investing in real estate can grow your wealth so effectively.

There are many ways to build wealth, but real estate might be the safest, steadiest and simplest way to do so.

 

Source: Mortgage Architects

Home Prices Continue to Soften Over Next Two Years

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The next two years in Metro Vancouver real estate will continue to see lower sales and higher inventories of homes available for purchase than in recent years, according to a forecast released November 6 by the Canada Mortgage and Housing Corporation (CMHC).

CMHC said in its report, “While existing home sales are expected to rebound in 2019 from the trough in 2018 in order to be more in line with the region’s growing population, resales will remain below the levels seen in 2015-2017.”

CMHC expects Metro Vancouver MLS resales to drop from the 50,033 units sold in 2017 to just 35,500-37,400 sales this year. Sales are then expect to recover somewhat in 2019 and 2020 to somewhere in the early to mid 40,000s range.

Home prices, however, are expected to head in the opposite direction. The agency is forecasting the average Metro Vancouver MLS home sale price to be between $940K and $980K this year (up from 2017’s $934,977). It is then expected to drop in 2019 to between $847 and $939K, and then slide to somewhere between $800,000 and $918,000 in 2020 (see graph below).

CMHC hmo van prices graph nov 2018
Source: CMHC, REBGV, FVREB

The CMHC said that a major factor in falling prices is rising interest rates making mortgage payments less affordable. It said, “Rising mortgage rates since May 2017 and stricter borrowing requirements are also having an impact on potential home buyers through two channels; 1) rising rates increase the carrying cost of holding a mortgage and; 2) rising rates have an impact on borrowing capacity.” This could mean falling home prices don’t necessarily equate to better housing affordability.

The agency also predicted the next two years for the rental market in Metro Vancouver. The report said, “The rental market is expected to remain tight across the region, average rents will continue increasing faster than inflation. The vacancy rate is expected to rise slightly; however, it will remain low in absolute terms, reflecting the strong demand for rental housing in the region.”

Source: Vancouver Courier

The Interest Rate Hike and What It Means For Canada Housing

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As was widely expected, the Bank of Canada (BoC) hiked the overnight rate to 1.75 percent.

Higher interest rates inevitably lead to higher mortgage rates, which means industry players keep a close eye on the BoC’s hikes, and how they could affect Canada’s housing market.

Rising rates could spook would-be buyers, placing downward pressure on the market. And, according to CIBC economist Avery Shenfeld, it looks like the Bank might be hiking rates at a faster pace heading into 2019.

“The tone [of the Bank’s announcement] was more hawkish than we expected, dropping the reference to “gradual” for hikes ahead (which markets will see as leaving the door open for two in a row, meaning a hike in December), and asserting that rates will have to keep climbing to “neutral”, which the Bank has estimated as near 3 percent,” he writes, in his most recent note.

Most economists agree that the rising-rate environment has had a positive impact on the Canadian housing market, helping to take it from bubble territory in 2017 to today’s more balanced conditions.

“Canada’s previously hot housing market and robust household borrowing trends have given way to much calmer activity in 2018, and that’s a good thing,” writes Douglas Porter, chief economist at BMO, in a recent note.

Porter notes that the country’s hottest markets, Vancouver and Toronto, now have price gains of just above 2 percent. But, he’s also quick to add that if rates rise too quickly, it could have a negative impact on housing activity in 2019.

“Still, there are plenty of warnings about the past build-up in debt and the vulnerability of the household sector to further rate hikes, a key reason why the Bank of Canada is likely to remain on a gradual tightening path,” writes Porter.

Source: Livabl

Supply of Homes Hits 3-Year High

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The supply of homes in Metro Vancouver’s real estate market hit a three-year high as sales dipped below historical averages last month.

The Real Estate Board of Greater Vancouver reports there were 2,425 home sales last month, a 37.7 per cent decline from June 2017.

Board president Phil Moore says rising interest rates, high prices and more restrictive mortgage requirements are among the factors dampening home buying activity.

Moore says that has allowed the supply of homes for sale to reach levels that they have not seen in the past few years.

There were 5,279 detached, attached and apartment properties newly listed for sale in Metro Vancouver in June, for a total of almost 12,000 for sale, reaching the highest listings figures since June 2015.

The composite benchmark price for all residential properties in Metro Vancouver is $1,093,600, representing a 9.5 per cent increase over June last year.

Watch and read more on this article here: Supply of Homes Hits 3-Year High!