Annual State of the Residential Mortgage Market – CAAMP Part 3

The Canadian Association of Accredited Mortgage Professionals (CAAMP) in its most recent annual report of the Residential Mortgage market in Canada (Nov 2011) provided an interesting outlook on three different topics:

  1. Consumer opinions on several issues related to housing and mortgages
  2. Consumer choices in the mortgage market and satisfaction level
  3. Outlook for the housing and mortgage markets

A synopsis of this report is being presented in a series of three articles. This third and last part will summarize findings regarding the housing and mortgage markets.

Economic Background

The Canadian economy is still recovering from the recession of 2008/2009. By September 2011, total employment in Canada was about 1.3% higher than at the start of the recession and continues showing signs of gradual improvement.

This last recession was a “made-in-USA” one. The greatest impacts were on businesses that sell goods and services to the US and the weak recovery of that country continues to weigh on the Canadian economy. Otherwise, economic fundamentals in Canada are quite positive, especially with strength in resource-producing industries and many of the major service industries (including professional and scientific services, health and education, and financial services).

The author of this report considers that the pace of economic recovery will remain modest during 2012, as there is a mix of positive and negative factors:

  • During 2012, expectations of employment growth will remain similar to the 1.4% seen in 2010-2011.
  • Resurgent of stock markets and wealth generated by rising housing values are two of the most important factors contributing to the recovery in Canada
  • Very low interest rates are also strongly supportive
  • The stronger Canadian dollar makes it more difficult for locals to compete in the global economy, plus continued weakness in other major industrial economies (especially the US)
  • The effects of the surging costs for commodities have been mixed across the country, depending on whether regions are producers or consumers of commodities

Housing Market Impacts

Housing market in Canada has become stable, with an annual resale activity reported by the Canadian Real State Association of 450,000 units. Relative to the size of the population, this activity is 10% lower than during 2003/2004 and about 15% less compared to peak levels reached between 2005 and 2007. This reduction in activity on a proportional basis is appropriate given the current post-recession economic environment.

House prices rose late 2010 and early 2011 due to a short spike in the average price in Vancouver, but have subsequently settled. By September 2011, prices were 11% higher than pre-recession peak. By contrast, in the US, prices are one-third below the pre-recession showing the different economic performances in Canada and the US.

In regards to new constructions of houses and apartments, housing starts respond less rapidly to changing economic conditions because of the lag times that result from the need to pre-sell new units and then initiate the construction process. However, during the past year housing starts have become more stable at a level that is 15% lower than pre-recession, consistent with the moderate rate of job creation seen post-recession. On the other hand, apartment activity is very strong, in part due to strong demand from investors who are buying condominiums with the intention of renting them out.

Housing Market Forecast

Concerning resale housing markets:

  • Sales are expected to be virtually the same in 2011 and 2012 as in 2010 (about 447,000 sales)
  • Prices are expected to increase by 7.7% in 2011. For 2012 forecast vary but none of them expects reductions or large increases. A modest price rise of 1% is expected during 2012.

Concerning housing starts:

  • For 2011 the expectation was to start 184,800 units, 2.7% lower than the 190,000 starts in 2010
  • For 2012, the average forecast is for a small reduction of 3.5% to 178,500. However, the range of expectations goes from 165,000 to 184,000 units.

Implications for Mortgage Lending

During the past five years, outstanding residential mortgage credit has expanded by 53%, or an average annual rate of 8.9%. In dollar terms, by August 2011 it has reached $1.079 trillion, growing and average of $75 billion per year.

The growth of mortgage credit occurs through:

  • Expansion of the housing inventory: About 80% of new ownership dwellings result in mortgages.
  • Sales of existing homes: Represent the largest amount of housing activity but the impact on mortgage demand is less due to mortgages amounts are about 30% lower than new homes and, secondly, a sale of an existing property often involves the discharge of an existing mortgage.
  • Equity take-out: CAAMP’s past year estimate is that renovation activity was $28.5 billion.
  • There are reductions in mortgage indebtedness through and increase in monthly mortgage payments and lump sum payments.

Forecast of Mortgage Activity

Based on the housing forecast, the author estimates that mortgage credit will continue to expand rapidly (7.7% rise in 2011; 7.3% in 2012; 7.0% in 2013). The total volume of the residential mortgage market would be about $1.19 trillion at the end of 2012.


CAAMP has conducted research on the potential impact of future rises in mortgage interest rates to determine if Canadians can afford the mortgage they have taken on, and – repeatedly – concluded that this risk is negligible.

Another risk considered was “over-building”, but Canadian data indicates that vacancy rates in the rental market remain low and falling, and in the ownership sector the sales-to-listings ratio is comfortably within a balanced market range.

Data also indicates that rapid growth of mortgage credit has been due to housing demand resulted from job creation and there is no evidence that the growth has been “speculative”.

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