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Residential Mortgage Industry Report - Fall 2022 Edition
From CMHC In this Fall 2022 edition, we find the following: Recent mortgage market trends Mortgage growth slowed down as interest rates hiked in the second quarter of 2022. Mortgage consumers are increasingly turning back to fixed rates as interest rates rapidly increase and the discount on variable interest rates vanishes. Declining ratios of mortgage loan approvals to applications show it is increasingly difficult for potential borrowers to get qualified for loans subject to the stress test. The share of mortgages in arrears (i.e. delinquent for 90 days or more) have continued to trend downwards across all types of lenders. Housing Finance Research at-a-glance In the third quarter of 2022, consumers without a mortgage registered notable delinquency rate increases in auto loans and credit cards. Mortgage lending growth by alternative lenders outpaces conventional lenders. Their portfolio metrics indicate a decreasing risk profile. Mortgage borrowers in the alternative lending space are more likely to renew their loans as it becomes harder to qualify with traditional lenders. https://assets.cmhc-schl.gc.ca/sites/cmhc/professional/housing-markets-data-and-research/housing-research/research-reports/housing-finance/residential-mortgage-industry-report/2022/residential-mortgage-industry-report-fall-2022-en.pdf?rev=239fc8ea-a885-430f-97fe-dd700161d872
Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening
The Bank of Canada today increased its target for the overnight rate to 4%, with the Bank Rate at 4% and the deposit rate at 4%. The Bank is also continuing its policy of quantitative tightening. Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events. In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canadas labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Banks outlook that growth will essentially stall through the end of this year and the first half of next year. CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched. https://www.bankofcanada.ca/2022/12/fad-press-release-2022-12-07/
Housing affordability: Back to the 1980s!
From National Bank of Canada We remain in the midst of the longest sequence of declining home affordability since the 1986-1989 episode (11 quarters). The magnitude of the deterioration, however, is much more pronounced this time (25.5 p.p. vs. 20.2 p.p. in the 1980s). As a result, the mortgage ona representative home in Canada now takes 67.3% of income to service, the most since 1981. A first since the second quarter of 2019 is the downturn in housing prices that has mitigated slightly the impact on affordability of still rising mortgage rates. Our 5-year benchmark mortgage rate used to calculate our affordability metrics rose 75 bps in the third quarter of the year. While this surge was less significant than the one observed in the previous quarter, it propelled the benchmark mortgage rate to its highest level since 2010. To give an idea of scale, all else being equal, a 75-bps increase represents an extra 300$ (or an 8.1% increase) on the monthly mortgage payment for a representative home in Canada. With our affordability indexes at extreme levels in most markets, we see further declines in housing prices. The slowdown in real estate activity in several markets is expected to result in a cumulative 15% decline in home prices in 2023 from the peak (-7.7% to date). This, combined with a stabilization of the benchmark 5-year mortgage rate, should improve affordability in the coming quarters. HIGHLIGHTS: Canadian housing affordability deteriorated for a seventh consecutive quarter in Q322. The mortgage payment on a representative home as a percentage of income (MPPI) rose 3.8 points, a deceleration from the 10.2-point increase in Q222. Seasonally adjusted home prices decreased 1.1% in Q322 from Q222; the benchmark mortgage rate (5-year term) rose 75 bps, while median household income rose 0.9%. Affordability deteriorated in all the ten markets covered in Q3. On a sliding scale of markets from worst deterioration to least: Vancouver, Victoria, Calgary, Montreal, Toronto, Quebec, Edmonton, Ottawa-Gatineau, Hamilton, Winnipeg. This was the seventh consecutive quarter with a worsening in all markets. Countrywide, affordability deteriorated 2.7 pp in the condo portion vs. a 4.8 pp deterioration in the non-condo segment. https://www.nbc.ca/content/dam/bnc/taux-analyses/analyse-eco/logement/housing-affordability.pdf