MPC on whether demand for housing and mortgages will continue

More than six out of 10 Canadian owner-occupied homes currently have mortgages

MPC on whether demand for housing and mortgages will continue

The strong demand for housing and mortgages that built up during the first few months of the COVID-19 pandemic is likely to last well beyond 2021, according to a new forecast by Mortgage Professionals Canada (MPC).

As of the end of 2020, MPC estimated that Canada had around 10.01 million owner-occupied dwellings, with approximately 6.08 million of these having mortgages.

For homes purchased last year, 77% of mortgages were fixed rate, 18% were variable rate, and 5% were a combination of the two types.

“Exceptionally strong home buying is currently resulting from a combination of record low interest rates and a strong desire by many of us to change our housing arrangements,” said Will Dunning, chief economist at MPC. “The supply (via flows of new listings into housing markets) has increased, but is falling short of demand. The result is that prices are increasing very rapidly.”

The average mortgage interest rate for newly purchased homes during the pandemic year was 2.32%, while the average for renewals was 2.29%. Among first-time buyers, the average down payment was 21% of the purchase price.

For perspective, the average mortgage interest rate for all borrowers by the end of 2020 was 2.6%, significantly lower than the 3.14% reading in 2019.

“Low interest rates have resulted in improved affordability,” Dunning wrote in the report. “Strong demand is causing prices to rise to fill the ‘space’ that has been created by low interest rates. It is unfortunate that the space is being filled; this is the result of under-production of housing in Canada during the past decade.”

However, while this momentum is likely to remain relevant to the market in the years to come, some disquieting consumer-side weak points remain.

“The employment situation is much more important than mortgage interest rates,” Dunning said. “This is because a problem with increased mortgage costs can usually be solved if the borrower has a steady income (for example, rescheduling payments by extending the amortization period), whereas problems caused by the loss of a job are more difficult to address.”