The report concluded that the vast majority of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.

In addition, slightly over one in three mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.

“Canadians are being smart and responsible with their mortgages, “said Jim Murphy, president and CEO of CAAMP. “They are building equity in their homes and making informed long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States.”

According to the report, 89 per cent of Canadian homeowners have at least 10 per cent equity in their homes and 80 per cent have more than 20 per cent equity.

Overall home equity is at 72 per cent of the total value of housing in Canada; for homeowners who have mortgages, equity levels averages 50 per cent.

As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6 per cent from last year.

Most Canadians agree that buying a home is a good long term investment and are focused on their mortgages to support that investment.

Many mortgage holders are making voluntary additional payment; 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments and seven per cent did both.

Canadians are exercising caution when taking out their mortgages, with their mortgages, with a majority at 66 per cent choosing a fixed-rate. A five year fixed rate mortgage remains the most popular option in Canada.

Despite the fact that variable rate mortgage have become much less expensive compared to fix rates, the majority choice is still fixed rates. This decision is based on people’s individual assessments of risk, not just the cost difference.

The CAAMP study found that a vast majority of Canadians have significant capabilities to afford higher payments if and when mortgage interest rates rise, with 84 per cent reporting that they could weather an increase of $300 or more on their monthly payments.

Most of the people who have low tolerances for increased payments have fixed rate mortgages. By the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.

Also, Canadians have been able to negotiate better than posted mortgage interest rates. For five year fixed rate mortgages arranged in the past year, the average rate is 4.23 per cent, which is 1.42 points lower than typical advertised rates.
Of the 1.4 million Canadians who renewed their mortgage in the past year, 72 per cent were able to renegotiate a decreased rate. On average, rates are 1.09 percentage points less than rates prior to renegotiating.

Canadians home equity is impressively high. Among homeowners who have mortgages, the average amount of equity is about $146,000 or 50 per cent of the average value of their homes.

The amount of equity take-out in the past year is unchanged from last year with around one-in-five homeowners, or 18 percent taking equity out of their home at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment followed by home renovations, purchases and education investments.

The report was written by CAAMP chief economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in October.

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A new report from RBC Economics says the driving factor was low interest rates, which helped reduce fixed mortgage rates across the country.

As a result, the bank says it was more affordable for Canadians to own a standard condominium, two-storey home or detached bungalow in the third quarter, though not by much.

The following RBC statistics include the total mortgage, utility and property taxes incurred by Canadian homeowners:

Owning a condo cost 29 per cent of median pre-tax household income at the national level, a drop of 0.2 percentage points from the previous quarter.

A two-storey home also became cheaper to own, but still costing 48.8 per cent of household income. That was down by 0.6 percentage points.

Finally, a detached bungalow ate up 42.7 per cent of that same income, a decrease of 0.7 percentage points from the second quarter.

In terms of a regional picture, RBC says Vancouver remains the most expensive housing market in the country.

In a statement, RBC Chief Economist Craig Wright said the Vancouver-area has “sky-high property values in upscale neighbourhoods making it both extremely unaffordable and the most at risk of a downward correction.”

On the other hand, RBC says Alberta is among the most affordable provinces in which to buy a two-storey home, detached bungalow or condo.

RBC also says that the Manitoba market “showed some of the more significant improvement in affordability among the provinces in the third quarter.”

Daryl Harris, a Winnipeg-based mortgage professional with Verico One Link Mortgage and Financial, said he was surprised by the RBC report’s analysis of the Manitoba market.

“Affordability generally follows one of two things, either lower rates or a decrease in house prices and I have seen neither in our market,” Harris told CTVNews.ca in a telephone interview on Friday.

Looking ahead to 2012, RBC believes housing prices are unlikely to soar any time soon.

“We expect to see further slowing in the pace of home price increases next year, as housing demand levels out,” said Wright.

“These factors will set the stage for a period of relative stability in affordability trends in Canada.”

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With fresh signs from the Bank of Canada that interest rates will stay lower for longer, Canada’s still-hot housing market has many of the hallmarks of the U.S. situation just a few years ago.

House prices dipped during the recession, but bounced straight back and have kept climbing since. And homebuyers are taking on record debt to buy houses at historically high prices.

When interest rates eventually rise, some forecasters warn the result isn’t going to be pretty. “Our view is that we are in a housing bubble, that housing prices have risen very sharply over the last 10 years, and that there is a big disconnect between housing prices and fundamentals, including interest rates,” said David Madani, an economist at Capital Economics in Toronto.

“It really does look like a housing bubble that will have a very unhappy ending.”

He predicted a 25-per-cent drop in house prices, adding Canadian homeowners would end up with negative equity.

Few economists are as willing to use the word “bubble” to describe Canadian real estate, even though the central bank noted in June that house prices are up 31 per cent from an early 2009 trough and are 13 per cent above their previous peak from before the global credit crisis.

Household debt is certainly soaring. Bank of Canada Governor Mark Carney recently warned Canadians were “as indebted as the Americans and the British.”

But faced with a stumbling global economy and European and U.S. debt woes, the central bank opted on Wednesday to keep rates steady, with many economists now expecting easy money until the second half of 2012.

“In order to crash you need two preconditions: a huge increase in rates as in 1991, which is unlikely, and a subprime type situation, namely very low-quality mortgages,” said Benjamin Tal, senior economist at CIBC World Markets. “That is not the situation in Canada.

“So although I see prices going down over next two to three years, I don’t see a crash, I see a moderate gradual softening.”

The government, fretting about high debt levels, is working to engineer that soft landing with tighter rules for government-backed insured mortgages that took effect in March. The changes cap mortgage terms at 30 years rather than 35 and cut the amount homeowners could borrow against their homes to 85 per cent from 90 per cent.

Canada’s national banks are more conservative lenders than America’s fractured regional banks were, and there is virtually no sub-prime market, where riskier borrowers end up paying higher rates. Mortgage interest is not tax-deductible, so the incentive to buy a home is less. And a large slice of the mortgage market is insured by the government.

http://www.theprovince.com/business/Housing+bubble+bound+burst/5376062/story.html

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The Ontario Real Estate Association (OREA) says 70 per cent of renters would like to buy a home at some point in the future. The OREA poll also says that 81 per cent of Ontario residents “believe it is more difficult to own a home now than it was for their parents, and 89 per cent of Ontarians in general are concerned that home ownership will become even more difficult in the future.”

OREA is calling on the provincial government to provide an improved land transfer tax rebate for first-time buyers, a permanent rebate program to support home renovations, and the reintroduction of the Ontario Home Energy Retrofit Rebate program to help with energy efficient renovations. Across the country, real estate associations are hoping for similar government assistance.

Housing affordability is also a concern for Canadian landlords, but they think homeowners get enough help already. “Homeowners receive a truly staggering array of subsidies and tax breaks compared to tenants,” says Vince Brescia, president and CEO of the Federation of Rental-housing Providers of Ontario (FRPO). “It is appalling that this regressive discrimination occurs despite homeowners having double the incomes of tenants on average. The net effect is that renters are forced to subsidize homeowners.”

A recent report prepared for FRPO and the Canadian Federation of Apartment Associations (CFAA) says the federal government gives the average homeowner household an average of $1,823 in subsidies, compared to $308 per household for renters. Among the policies and programs that favour home ownership in Canada, say the landlord organizations:

Tax-free status for capital gains on principal residences
Lower property tax rates for owner occupied homes in many provinces
The federal Home Buyers Plan, which allows first-time buyers to borrow from an RRSP for a down payment on a home
Rebates on land transfer taxes for first-time buyers

Home ownership receives further assistance from the government’s policy of requiring mortgage insurance for high-ratio loans.

The CFAA says the government should “review the broad issue of moving Canada’s tax policy away from excessive encouragement of home ownership.” It says a more neutral policy would provide benefits to the Canadian economy, such as providing higher labour mobility (renters are more likely to move than owners), more incentive for investors to put money into “income and growth producing assets, rather than owner-occupied housing”, and would give the government an opportunity to lower other taxes “since owner-occupied homes are currently largely exempt from income taxes whereas rental properties produce tax revenue.”

Canada is a nation of homeowners, however, and it doesn’t seem like that’s going to change quickly. According to The Consumerology Report from advertising agency Bensimon Byrnes, “Most Canadians continue to feel the cost-of-living pinch and have not seen improvements in their incomes, job security or growth in their investments, and yet, because of the increase in the value of their home, their perception of their own net worth is improved,” says Jack Bensimon, president of the agency.

In addition to the boost that the real estate industry provides for the economy, the OREA poll says 94 per cent of Ontarians think that owning a home provides a healthy and stable environment for raising a family. OREA says that homeowners are much more likely to say they voted in the last municipal election than renters, and 35 per cent of owners say they have volunteered in their community.

The debate about whether it’s more economically sound to buy a home and build equity, or rent and invest money elsewhere, has continued for years. A renter may not have the discipline to put as much money into investments when it isn’t forced savings like paying off a mortgage. There are also no guarantees that home values will continue to rise, or will go up during the specific time period the owner has the home.

In the end, the pride of home ownership seems to be the reason most Canadians aspire to buy. As long as home ownership makes Canadians happy, you can expect the government to continue to subsidize it.

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In other words, Canadian homeowners are unlikely to experience what U.S .have underwent in terms of the decline of their home value.

“The relationships between average price and income has recently been cited as portending a U.S.- style correction in Canadian home prices,” said Gregory Klump, chief economist for CREA.

Home prices tend to perform well in the market in accordance with periods of sharp growth periods of stability. By contrast, income generally follows an orderly upwards trend over time.

Winnipeg REALTORS® president Claude Davis said the Winnipeg market is more characterized by the term “slow but steady.” In addition, it is known to be one of the most affordable markets in Canada which is not prone to accelerated price increase unlike Calgary, Vancouver and Toronto.

“The Canadian housing market is now widely thought beat, or very near, the top of a cycle,” said Klump, “and the ratio of the home prices to incomes is currently high. This ratio will revert to its long-term average as it always does as part of a normal housing market cycle.

“History suggests, however, that it will not do so by means of a significant correction in home prices,” he added. “The more likely scenario is that home prices will stabilize, giving incomes chance to catch up again.”

Conservative lending practices in the mortgage industry combined with prudent borrowing and accelerated payments among Canadian mortgage holders have been seen throughout the recent housing market cycle.

Accelerated accumulation of home equity will provide options for the small proportion of homeowners who may face financial difficulty when their mortgage is renewed at a higher interest rate. Their trends are expected to help Canada avoid a U.S.-style housing crisis.

The unwinding of the housing boom in Canada will be more orderly, characterized by softening sales activity and stable prices, according to CREA.

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The 1999 survey released Wednesday was based on 1998 figures. It shows that annual property tax averaged $2,230 in Ontario and $2,030 in Quebec. By contrast, homeowners in Newfoundland and Labrador paid an average of $640.

Canadian homeowners paid 2.9 per cent of family income in property taxes in 1998, one-seventh of the 21.3 per cent they paid in income tax.

However, the ratio between the two taxes differed greatly according to the level of family income, the survey found.
Families with income less than $20,000 paid more than twice as much in property taxes (10 per cent of annual income) as they did in income taxes (four per cent).

Families earning $100,000 or more paid just 1.8 per cent of their income on property taxes and 28.6 per cent on income tax.

The effective property tax rate (tax paid on a property relative to its value) was highest in Quebec and Manitoba at 1.9 per cent, with Saskatchewan following at 1.8 per cent.

All other provinces had rates of 1.2 per cent or lower. In British Columbia, which had the highest property values, the effective rate was just 0.7 per cent.

Homeowners below Statistics Canada low-income cut-offs paid relatively large proportions of their incomes in property taxes: 11.7 per cent for the elderly and 10.8 per cent for the non-elderly.

However, low-income homeowners had much higher assets, in terms of home equity and other financial assets, than low-income renters.

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/1059058327636_91

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