Blog posts labelled: mortgage

Friday, January 27, 2012

Is record household debt a problem for home owners?

by Amalia Liapis on Fri, Jan, 27, 2012 09:28 PM

Continuous bad news about rising Canadian debt has been making headlines for the past few years – and now we’re hearing over and over again that mortgage debt has reached epic proportions.

Is all of this negativity accurate? We decided to find out by asking some credible sources.

The truth about household debt.

It is true: the overall household debt of Canadians is at a record of $1.5 trillion, growing from $147 billion in 1982. Two-thirds of the increase from 1982 - 2010 occurred from 1999 - 2010.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt.
The debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971- 2010 period.
The largest component of debt among households is residential mortgages which account for two-thirds of all household debt. This debt has kept pace with home prices, and is larger in BC and Ontario than other provinces.
In 2010, residential mortgages represented about 68% of total household debt. This compares to a low of 63% in 1971 and a high of 75% in 1993, during the 1971 – 2010 period.

Why have we seen high mortgage debt?
The reasons include:

historically low interest rates which allowed households to increase borrowing activity including home equity loans for home improvements, cars and vacations;
rising household income and net worth which allowed households to borrow larger amounts
financial product innovations (low down payments and longer amortization periods) that let Canadians carry a larger debt load, since they allow for lower monthly payments;
rising home prices boost debt since larger amounts must be borrowed; and
beginning in 2009, sudden lower income growth as a result of the global economic depression.

Mortgage holders are also typically younger, who have bought their home within five years, and who carry higher mortgage debt than those who have been in their homes longer.

How does mortgage debt compare with other debt?

In 2010, residential mortgages represented 58% of total household debt held by chartered banks. Consumer credit accounted for 42%.
Credit cards as a share of household debt held by chartered banks remained constant from 1982 to 2010 at 7% per year.
In 2010, the share of personal loans significantly decreased to 10% from 39% ion 1986.
In 2010, the share of personal lines of credit increased to a whopping 25% from 3% in 1986 indicating that consumer and credit card debt has considerably outpaced mortgage growth.
CMHC s mortgage arrears rate is 0.42%

Annual Growth Rates of Canadians’ Debt

Year	Total Household Consumer Debt	Total Household Mortgage Debt	Total Household Debt
1981 - 1990	8.3%	10.7%	10.0%
1991 - 2000	7.2%	5.5%	6.0%
2001 - 2010	9.6%	9.3%	9.4%

Excerpt from January 2012 Edition of Realtor Link, Volume 13, Number 01

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Tuesday, October 25, 2011

Bank of Canada Interest Rate Announcement

by Amalia Liapis on Tue, Oct, 25, 2011 12:00 PM

Categories:banking,Canada,Finances,financing,forecast,mortgage,mortgages

As was universally anticipated, the Bank of Canada opted to hold its target overnight rate at 1 per cent this morning. Ongoing uncertainty in the Euro-zone continues to weigh heavily on the Bank's outlook. In its statement accompanying the interest rate decision, it was noted that the bank is now projecting a contained Euro-crisis, but also a brief recession in the Euro-area due to ongoing deleveraging and fiscal austerity. The Bank also expects continued weakness, but no recession, in the United States through the first half of 2012 before a resumption of stronger growth. Given various challenges in the global economy, the Bank of Canada trimmed its outlook for Canadian economic growth to 2.1 per cent in 2011, 1.9 per cent in 2012 and 2.9 per cent in 2013 which is in line with our own forecast. On inflation, the Bank now expects slack in the economy to persist longer than originally forecast, leading to a closing of the output gap at the end of 2013. This implies softer than expected inflation in coming quarters, with consumer price growth moderating before returning to the Bank's 2 per cent target by the end of 2013.

Overall, this morning's statement shows a very cautious Bank of Canada that is unlikely to make any significant movements on interest rates over the next two to three quarters. Further monetary tightening will be highly contingent on a brighter growth outlook in the United States and a credible solution to the Euro sovereign debt crisis. Therefore we expect the Bank of Canada to remain on the sidelines through the end of 2011 and the first half of 2012.

Cameron Muir

BCREA, Chief Economist

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Thursday, July 29, 2010

Mortgage Rate Forecast

by Amalia Liapis on Thu, Jul, 29, 2010 12:00 PM

Categories:banking,Canada,financing,forecast,mortgage

The Canadian economy grew at the exceptional pace of 6.1% in the first quarter of 2010, propelled by a booming housing market, strong consumer spending and the rebuilding of private sector inventories. Moreover, growth in the second quarter of 2010, while not expected to register the sizzling pace of the previous six months, should be a robust 3%-4%.

However there are signs that the economy, if not stalling out, may be slowing down. April’s monthly GDP print was disappointingly flat as consumers moved to the sidelines, sending retail sales lower by almost 2%.

Even if Canadian consumers are beginning to tire out, economic growth should be supported in coming months by projects initiated under the federal government’s infrastructure stimulus plan. This stimulus will provide a needed boost to the economy through the remainder of 2010, with projected impacts peaking in the third quarter, but will create a drag on growth in 2011 as the stimulus is withdrawn from government expenditure.

The strength of the Canadian economic recovery over the past six months is evidenced by the over 300,000 jobs created in the Canadian economy since the beginning of the year. While this exceptional rate of job creation stands in stark contrast to the gloomy employment situation of our southern neighbour, it also re-affirms the need for the Bank of Canada to begin withdrawing its emergency level of monetary stimulus by raising interest rates, particularly given the proximity of core inflation to its 2% target rate.

The withdrawal of monetary and fiscal stimulus from the Canadian economy in coming months will result in slower growth in both the second half of 2010 and into 2011. This growth slowdown may be further exacerbated by weaker than currently anticipated US and global economic growth as well as a higher Canadian dollar resulting from a rise in Canadian interest rates relative to the United States.

In all, slower economic growth and inflation that is within the Bank of Canada’s comfort zone should mean that, while interest rates are certain to rise, the pace of interest rate increases should be orderly and the level of interest rates will remain near historic lows through the remainder of the year.

By Cameron Muir, Chief Economist and Brendon Ogmundson, Economist, British Columbia Real Estate Association

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