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December 01, 2018

Real Estate Insider - Mortgage insights

What a recent consumer survey tells us of the market

Mario Toneguzzi

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Earlier this fall, Canada Mortgage and Housing Corporation released its annual Mortgage Consumer Survey — something it has done since 1999.


And the survey is always interesting to look at as it gives a nice snapshot of what’s happening in the nation’s housing market.

“Shopping for a mortgage can be overwhelming so the more information you have, the better your experience. We’ve expanded our survey to give us greater detail on what Canadians want when looking for a mortgage and how they go about the process,” said Carla Staresina, Vice-President, Client Relationship Management, CMHC.

“We also now have more insight into important groups like millennials and first time buyers. Ultimately, our hope is to help Canadians get the most out of the mortgage shopping experience.”

So before drilling down into the survey results here’s some background. It’s the largest survey of its kind — an online survey conducted in April of 4,000 recent mortgage consumers, all prime household decision makers who had undertaken a mortgage transaction in the past 12 months. 

The CMHC said 68 per cent had renewed their mortgage, 15 per cent had refinanced their mortgage, and 16 per cent had purchased a home with mortgage financing (nine per cent first-time buyers and seven per cent repeat buyers). 

The report is very comprehensive but here are some key highlights:

• There are many factors that go into the decision-making of what home to buy. The particular neighbourhood, how close the home is to work, and of course the condition of a home are important factors. But almost twice as many first-time buyers say price/affordability is the most important factor for them;

• Buying a home can feel pretty scary for many people and 37 per cent of home buyers continue to feel concern or uncertainty when buying a home. Of course, affordability continues to be the top concern with  more than 50 per cent of concerned buyers worrying about paying too much for their home while nearly one-third worry about rising interest rates and mortgage qualification;

• 85 per cent of first-time buyers spent the most they could afford on their home purchase and 76 per cent are confident they will be able to meet their future mortgage payment obligations;

• The good news is that most people — 60 per cent of first-time buyers - are confident they would have sufficient funds to supplement their needs if they were to run into some financial trouble;

• About 50 per cent of home buyers said they would feel comfortable using more technology to arrange their next mortgage transaction but the majority still agree that it is important to meet face-to-face with their mortgage professional when negotiating and finalizing their mortgage;

• The biggest news in the Canadian residential industry this year has been the tighter mortgage qualification rules that came into effect at the beginning of the year. Many say these rules have eliminated many potential homebuyers in the country. The survey found that  52 per cent of homebuyers were aware of the latest mortgage qualification rules and about one in five first-time buyers said the rules impacted their purchase decision with most opting to decrease non-essential expenses, purchase a less expensive home or use savings to increase their down payment.

• Despite issues of tighter mortgage regulations and affordability concerns, 80 per cent of people said buying a home is a good long-term investment and 66 per cent think the value of their home will increase in the next year.

The makeup of first-time buyers in Canada was quite interesting as they have become an important demographic in the national housing market.

Here is what the CMHC found: 49 per cent of first-time buyers are Millennials (25-34 years old); 40 per cent are married; 80 per cent are employed full-time; 61 per cent purchased a single-detached home; 26 per cent have a household income of $60,000 to $90,000; and 22 per cent are newcomers to Canada.

As we head into the final weeks of 2018, the CMHC has more info to mull over regarding the local housing market. Its fourth quarter Housing Market Assessment for the Calgary census metropolitan area found a “moderate” degree of vulnerability overall.

The report looks at several different factors and assesses the level of risk in each. For overheating, price acceleration and overvaluation the risk was characterized as low but it was high for overheating.

“There continued to be strong evidence of overbuilding as elevated inventory levels persisted in the second quarter of 2018. A substantial number of apartment units are under construction which pose a risk to rising inventory if these units are not timely absorbed,” said James Cuddy, senior analyst, economics, for the CMHC.

The report said the number of completed and unsold units per capita increased from the first quarter of 2018, keeping the indicator above the critical threshold for overbuilding and overbuilding is largely being driven by the multiples segment of the market.

A decline in house prices moved prices closer in line with economic and demographic fundamentals, which reinforced low evidence of overvaluation in the market, added the report.

“There are a number of factors impacting demand. In particular, the adult population aged 25 to 34, a proxy for household formation and first-time buyers, declined for the fifth consecutive quarter,” said the CMHC.

“This, combined with a relatively high unemployment rate have impacted demand. At the same time, however, real personal disposable income has increased slightly in the second quarter of 2018 by 0.24 per cent on a year- over-year basis. Relatively higher disposable incomes coupled with a decline in home prices moved valuations of the market closer to that estimated by fundamentals.”

Also, CMHC said evidence of overheating remained low as the sales-to-new listings ratio declined in the second quarter of 2018 to 40 per cent from 52 per cent in the previous quarter, which was well below the 85 per cent critical threshold. The ratio dropped because of an eight per cent quarter-over-quarter decline in seasonally-adjusted sales combined with an 18 per cent quarter-over-quarter increase in new listings.

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