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2007 Housing and Mortgage Forecast
Looking back
at the housing market in 2006, I would suggest that one
of the best questions right now is "what are we in for
in 2007? Good question indeed...
Although
affordability dropped off sharply last year, it wasn't
without the origination of new mortgage products to
assist in getting into a home. One would argue
that these products were generated to set us borrowers
up for failure! What, with extended amortizations
up to 40 years, extended qualification guidelines, and
new mortgage products with a greater amount of
"grace" for qualification? The reality is, without
these guidelines - a great percentage of us would be
left out in the cold, so to speak - and still answering
to our landlords! So if the market can dictate
with that amount of strength in a ONE year period, what
happens after that? Where do the prices go from
here in terms of affordability? What about the
mortgage interest rates? Surely there must be some
negative effects...kind of like an earthquake - aren't
there aftershocks?
There are
certain criteria that affect firstly, "why" the housing
market exploded in most of the country - and that has a
great deal to do with job creation. This is what
REALLY drives the housing demand.
During 2006, it
is noted that the Canadian job market was in its best
condition that it has been in for 30 years. With
so many jobs being created and secured by Canadians; the
areas affected MOST, will experience the greatest
housing demand - and up rise in cost. In
most of the Western country, yes...yes it surely did!
So with this in mind, and reflecting on history when the
housing market spikes, can we not reflect on the past to
indicate our future? We'll look closely at two
other criteria: Cyclical changes and Structural
changes.
Cyclical Changes
With regards
to Cyclical changes, it's quite certain that the
housing temperature will "cool down", but only in some
parts of the country. No, the sky is not falling -
but definitely more of a modest "slow down" at
best. Predictions of a 5% - 7% lower activity rate
from what we experienced in 2005 and 2006 have been made
by some. Keeping in mind, of course, that certain
parts of Canada experienced much greater activity than
other parts of the country is important.
Alberta, for
example was "head spinning" to say the least!
Adversely, places like Ontario, Quebec, and Eastern
Canada are expected NOT to be in the same arena of
housing activity for 2007. Price correction is not
expected to be that large either. No significant
impact on price correction is in the forecast - no
prices falling, but a "leveling off" to say the least.
Again, Alberta and some parts of B.C. may be looking at
their "own" market this year!
In terms of
mortgage popularity, it is predicted that the variable
rate mortgage will be more popular due to a fall of
fluctuating interest rates. The popularity of the
variable rate was very high during the 2004/2005 period,
but there is no expectation that the variable rate
mortgage will be as popular this upcoming year.
The spread between long-term rates and short-term rates
are not expected to be as significant as they were in
the past. With expectations of a "flat yield
curve" for 2007 - this just may bring the variable rate
mortgage back in the game a little stronger than what we
had seen in 2006. Likely it won't be "hotcakes" -
but perhaps an attractive option to many.
Let's now look
at the Structural Changes in the market, and how
this may affect the rest of 2007...
Structural Changes
Let's firstly
look at the types of mortgages that are being dealt out
these days - trust me, this is relevant. Usually,
many people will hear the words "traditional bank
guidelines" and know what that means. Basically, a
traditional bank guideline means that there is a
mortgage with a "vanilla" type of flavor to it - so to
speak. It's for the client with good credit, and
verifiable income through an employer in a nutshell.
But on the other hand, if we hear the word "sub-prime" -
many of us don't follow.
A sub-prime
loan is any loan in which the borrower has challenges in
obtaining mortgage financing because of poor credit,
hard to document income or assets, or any unique
situation that would prevent them from obtaining funding
through "conforming" or "traditional bank guideline"
lenders. That being said, the sub-prime market is
rising...quickly! The sub-prime market is not JUST
for the challenged credit borrowers, it is greatly
dependent on the fact that Canadians are becoming more
and more business savvy, and are becoming self-employed
at a very fast rate! The demand for mortgage
products to fit this trend has erupted - and as the
demand of such mortgage products increase, the more the
mortgage structure changes!
The sub-prime
mortgage organizations jumped by a whopping 50%, in turn
creating an estimated 85,000 Canadians into a home
through their "non-conforming" mortgage options - who
would normally not qualify under the traditional bank
guideline. The forecast of these organizations you
ask? We can expect to see an annual rise on
average of 20% for the next 5 years to come...that's
huge. The fact that self-employment rates are
expected to rise over the next 5 to 10 years, can and
will support the need for the non-conforming,
"sub-prime" lenders.
Lastly, let's
talk about the impact that mortgage associates and
brokers are having on the community these days.
Yes, we still tip our hats to our southern counterparts
who are conducting about 83% of the mortgage
arrangements in the States, but we are gaining headway
here at home. The mortgage associate in Canada has
risen 3% in the past 10 years. We are now placing
approximately 25% of the mortgages in Canada!
Within this 25%, about 33% of the mortgage associates
market share is derived from a crowd of 35 year olds and
younger. Why? It seems that the younger
crowds like to shop around and get the BEST DEAL.
As their parents were married to the banks, the next
generation perhaps feels that there is something better
out there - so they are opting for a mortgage associate.
The changes of
the last year alone were influential indeed, but in my
opinion, almost in a way that was essential to support
the market that most of the country experienced.
The long term effects on such changes are yet to be seen
- and of course, is a different conversation all
together. We have to leave that up to the test of
time...
Sincerely,
DAN
MASS, AMP Broker/Agent
Canada First Mortgage
direct:
403.294.0033 cell: 403.710.1505
fax: 403.201.8475
email:
dan@canadafirstmortgage.com
website:
www.canadafirstmortgage.com
104 Chaparral Common SE
Calgary, Alberta, Canada
T2X 3N8
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