A recently-released spring survey of the mortgage market by the Canadian Association of Mortgage Professionals (CAAMP) warns of a weakening housing market with economic implications.
On the one hand, the Change in the Canadian Mortgage Market survey shows that the almost six-million Canadians who own homes with mortgages are comfortable with their debt.
On the other hand, data, collected and analyzed by CAAMP’s chief economist Will Dunning, indicates that government restrictions on mortgage borrowing have set the stage for a steady decline in new home building, which will trigger job losses and a drop in housing-related economic activity by 2015.
“CAAMP has argued that government efforts to slow the housing market have long-term negative economic consequences and the data continues to support our assessment,” said Dunning.
“Until now, housing has played a major role in the recovery from the 2008-09 recession,” he added. “That economic driver is disappearing, as we see housing-related jobs dry up and consumer confidence erode at a time when the national recovery is struggling to pick up steam.”
In an earlier report, Denning said that housing construction, resale (MLS®) market activity and mortgage lending have contributed directly to job creation.
At the time, Dunning said housing numbers “behave like a canary in the mine,” and four successive stages of tightened federal mortgage rules have contributed to a drop in overall sales activity.
Last July, federal finance minister Jim Flaherty announced the lowering of the allowed amortization period for Canada Mortgage and Housing Corporation (CMHC)-insured mortgages from 30 to 25 years. Flaherty claimed household debt had increased too rapidly and rule changes were needed to cool the housing market in order prevent a bubble.
“The CAAMP survey demonstrates that Canadians with mortgages are managing debt responsibly, negotiating low interest rates and paying down their mortgage faster than required,” said Jim Murphy, president and CEO of CAAMP. “What is cause for concern is that the housing market, an important engine of growth for the Canadian economy, is slowing to such an extent that without any change, it could take another five years to recover.”
The CAAMP survey indicated 18 per cent of mortgage holders increased their payments in the past year, and an additional 16 per cent made lump sum payments on their mortgages during the past year. Also, 80 per cent of mortgages have an original amortization of no more than 25 years
“Since changes to mortgage rules made in 2012 took effect,” said Gregory Klump, the Canadian Real Estate Association’s (CREA) chief economist, “national sales have been running nine to 10 per cent below levels posted in the first half of 2012.”
CREA reported that April activity was on par with where it stood last August, and month-to-month changes since then have held to within a range of plus or minus two per cent.
Locally, WinnipegREALTORS® reported the housing market had declined in February and March before rebounding in April, although sales and dollar volume activity were still slightly below the level for the same month in 2012. WinnipegREALTORS® reported that the greatest decline was in first-time home buyers — the result of the new mortgage rules — and sales in the lower price ranges.
During the past nine months, according to Dunning, the dollar value of national housing resale activity was 8.3 per cent lower than during the year prior to the 2012 tightening of mortgage requirements
He said reduced house sale activity brings lower incomes and employment across industries directly and indirectly involved in sales, financing, legal services, moving, renovations, sale of furniture and appliances, landscaping, etc.
But not all new home markets are created equal. While two of Canada’s largest markets — Greater Vancouver and Toronto — are experiencing housing starts declines, the Winnipeg market has actually increased in recent months.
“After moving higher in March,” said Dianne Himbault, CMHC’s senior market analyst for Winnipeg, “the trend in total housing starts continued to increase in April based on strength in both the single-detached and multiple-family sectors.”