Today, the Canadian Mortgage and Housing Corporation released their financial information. There were legally required to do so. This is progress! Canadians should be proud that we now have this level of statistics from Canada’s largest insurer of home mortgages and home equity lines of credit.
Here are some highlights:
- HELOCS has dropped by 40%
- 156K is the average insured mortgage
- More that $500 Billion in mortgages are insured by CMHC
- Mortgage default is low (.04%) and has not increased since 2010.
- The average length of amortization of insured mortgages is 24 years.
Let’s analyze some of these numbers and see if we can learn more about the health of the Canadian real estate market. CMHC insurance is required by all homes that have less than 20% down (down payment). For example, the average home price in Canada is approximately $330,000. If a buyer has $66,000 (20%) for a down payment, then they do not require CMHC insurance. Buyers that don’t need CMHC insurance, don’t have to pay extra fees to CMHC.
If we divide the total mortgages outstanding (500 billion) by the average size of the mortgages (156K), we might say that the CMHC insures approximately 3.2 million mortgages. This means 3.2 million people don’t have enough to by 20% down on their mortgage.
Some of the averages provided by the CMHC don’t seem to compute. For example, if the average home for sale in Canada is $330K, then why is the average insured amount only $156K? If $156K represents more than 80% of the value of the home, then does that mean that people are buying homes worth $200K? Perhaps the average of $156K includes the Home Equity Lines of Credit (which CMHC also insures). If anyone knows that answer to this, please comment below.
The good news about the CMHC numbers is that there are not a high amount of defaults. Less than 1% (and it’s actually less than half of 1%)! “Default” is calculated as home owners who are more than 90 days late on a payment. This number has not increased since last year. If the CMHC does insure 3 million mortgages, this defat rate would equal 12,000 homes defaulting per year.
The most dramatic news (as indicated by newspaper article titles) is that the number of HELOCS dropped by 40%. The Canadian Government recently changed the amount of home equity credit lines that could be insured by CMHC. The change was only a 5% difference (from 90% to 85% of home’s worth). This does not seem dramatic enough to cause a 40% drop. Perhaps there are other factors involved. Perhaps Canadian’s have simply stopped spending more money than they make. Perhaps they have stopped using their home as a cash machine with which to remove money whenever it increased in value.
The average amortization of insured mortgages was reported as 24 years. This amount actually increased from 23 years in a previous report by CMHC. This seems to be an unexpected increase in light of the fact that the Canadian Government recently changed the amount of insured mortgages from 35 years to 30 years.
One would have thought that the average amortization would have dropped along with this change. If the average is increasing, I guess we can conclude that most new mortgages are being taken out at 30 year amortizations.
So these stats from CMHC could be taken a few different ways. In a positive light, there are less HELOCS, a low average outstanding mortgage amount, plus a very low default rate. Great news for a healthy real estate market. If you want to be a doomer and gloomer, you might say that that are millions of Canadians with less than 20% equity in their home. A simple decrease in home prices could put millions of Canadians into negative equity positions. Most new mortgages are for 30 years and the amount of mortgages insures just grew by billions of dollars in the past 3 months. Thus Canadians are even more in debt than they have ever been.
One very positive outcome is that the Canadian Government has forced the CMHC (a government entity) to be more public with their information. Now the general public has more access to information and thus able to make better choices based on this information.
What are your thoughts on the CMHC stats?
For all of your real estate questions please call PropertySold.ca Inc. today at:
1-855-900-SOLD and speak to a customer service representative. We have licensed real estate professionals on staff ready to take your call right now. List your property for sale by owner today. New! We now accept real estate listings from real estate agents and new home builders & developers. More Information »
Real estate news in Canada including buy and sell information, local market updates, guides, tips for Canadians in the real estate market.