debt soars; Canadians stretching loans over longer time, StatsCan says
Gillian Shaw
Sun
Home ownership is at its highest level since 1971.
The dream of home ownership is a reality for more Canadians than in a generation, but so is the increasingly sober reality of soaring debt levels.
And we are stretching that debt out over longer timelines, to the extent that a growing number may never pay off their mortgages.
Home ownership across the country is now at its highest level since 1971, according to a report from Statistics Canada released Wednesday. About two-thirds of Canada‘s 12.4 million households own their home.
The report also shows that British Columbians are paying the highest proportion of their income among all Canadians to housing costs, as nearly a third are spending more than 30 per cent of their income to keep a roof over their heads.
More than one-third of the new mortgages being taken out in Canada are now amortized for more than 25 years, a portion labelled by one expert as “phenomenal” for a relatively new mortgage product, and the expectation is that the percentage for B.C.’s homebuyers would be at least that high.
“From the fall of 2006 through the fall of 2007, 37 per cent of all new mortgages in Canada were for amortizations longer than 25 years,” said Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals. “Of all the mortgage products that have been introduced, the ones longer than 25 years are the most popular.
“Thirty-seven per cent is quite high. It is phenomenal for a product that is relatively new.”
Among all outstanding mortgages last year, some nine per cent were pegged with payoff dates stretching more than 25 years all the way to 40 years.
“That number will obviously increase every year,” said Murphy.
The embracing of the 25-year-plus mortgage — which federal Finance Minister Jim Flaherty recently cited as a concern, and a trend he said the government is watching — comes at a time when British Columbians are already paying the highest proportion of their income among all Canadians to housing costs, according to StatCan’s report.
Across the country, the percentage of Canadian homeowners who have a mortgage is at a 25-year high, with almost six out of every 10 homes mortgaged.
In British Columbia, the 57.6 per cent of owners who have a mortgage is close to the national average of 57.9 per cent, but the financially beleaguered B.C. residents have the highest percentage of households shelling out more than 30 per cent of their income on shelter.
High home prices in B.C. are to blame.
“British Columbia has always had the highest housing prices in Canada,” said Murphy. “That would lead the province to have the highest average mortgages and it is not a surprise that British Columbians would have a high percentage of their income going to mortgage or shelter costs because they have the highest housing prices in the country.”
Murphy said he expects British Columbians share the national penchant for longer-term amortizations.
“I don’t think British Columbia would be much below that 37 per cent,” he said.
High home prices here make the lower payments of the longer amortization, which comes with considerably higher interest costs over the life of a mortgage, appealing particularly for first-time buyers trying to get into the market.
“That is one of the reasons these products have come in,” said Murphy. “It deals with affordability.
“There are also some people with a lot of equity in their home who for some reason want to lower their payments.”
Among all households, almost 29 per cent of British Columbians are spending more than 30 per cent of their income keeping a roof over their head, according to statistics compiled from the 2006 census. Nationally, 24.9 per cent of households were in that category.
B.C. renters fare the worst at 44 per cent, while 22.8 per cent of B.C. homeowners, up from 20.7 per cent in the 2001 census, are spending more than 30 per cent of their income on shelter costs that include mortgage payments, property taxes, condominium fees and utilities. That compares to 17.8 per cent of homeowners across Canada who see more than 30 per cent of their income go to housing.
The B.C. numbers outstrip the national average of 24.9 per cent by a wide margin and are higher than five years ago, when 28.6 per cent of households in B.C. spent 30 per cent or more of their income on shelter.
Vancouver came second only to Toronto in the proportion of households spending 30 per cent or more of their income on shelter among census metropolitan areas.
Susan Teakles, a market analyst with CMHC, said an increasing number of households are paying more than 30 per cent of their income towards housing.
“In Canada, it is up by almost 12 per cent and in B.C. it is up 9.4 per cent and most of that has come from the home ownership side,” she said.
Among homeowners, there was about a 25-per-cent increase in paying more than 30 per cent toward housing costs and it was close to that in B.C.
In Vancouver, 65 per cent of people own their own home, a 15-per-cent increase in the five years between the 2001 and 2006 census findings.
Not surprisingly for a province that in its most recent real estate stats found the average price of a detached house in Greater Vancouver to be $771,250, B.C.’s metropolitan areas rank as the condo leaders in Canada.
Condo ownership accounted for 31 per cent all home ownership in Vancouver in 2006, for 23.8 per cent in Abbotsford, 21.2 per cent in Victoria and 21.1 per cent in Kelowna.
Condos also saw the largest increase across Canada of owners spending 30 per cent or more of their income on shelter. In 2006, 37.5 per cent of condo owners spent 30 per cent or more compared to 32.3 per cent five years earlier.
The dream of burning the mortgage appears to be a more elusive one for Canadian owners, with the percentage of mortgage-free owners declining between 2001 and 2006, bucking an expectation that aging baby boomers would be paying off their mortgages by now.
“The share of owner households with mortgages has not been at such a high level in Canada since 1981,” the report said.
“This was when baby boomers were entering the housing market.
“With the aging of the population and with baby boomers entering their 60s, when mortgages traditionally are paid off, the percentage of households with mortgages could be expected to decline and the percentage that are mortgage-free could be expected to rise.
“Instead, the reverse occurred between 2001 and 2006.”
The report suggested most of the increase in the proportion of mortgage holders could be explained by renters buying, with some of the increase due to homeowners taking on new mortgages or adding to existing ones, perhaps to finance renovations or other large purchases.
Another factor could be couples breaking up and creating the need to purchase a second residence or two smaller or less expensive ones.
